economic methodology and the economic problem

allocative efficiency

when economic resources are utilised to produce the combination of goods and services that maxamise utility and economic welfare

allocative price function

prices allocate resources away from markets with excess supply to markets with excess demand

capital goods

goods that are used in production of other goods

e.g. machinery, tools, and equipment

choice

choosing one of the many alternatives when deciding jhow to allocate scarce reosurces

consumer goods

goods which are consumed by households and individuals

e.g. food, clothing, electronics

economic welfare

the economic satisfaction of individuals or households in an economy

factors of production

inputs of the production process

e.g. land, labour, capital, enterprise

finite resources

non-renewable resources that become increasingly scarce

the fundamental economic problem

that there are infinite wants but finite resources which means that they have to decide how best to allocate scarce resources in order to maximise economic welfare

imperfect information

when the consumer lacks perfect information to make the best decision

incentive price function

prices create incentive to change economic transactions (influences people to buy more or less of something)

need

something which is a necessity for survival

e.g. food, water, shelter

normative statement

statements which include a value judgement and are not fact

opportunity cost

the cost of an alternative is the value of the next best alternative forgone

positive statement

a statement which can easily be proved true or false because it is fact

production possibility frontier (PPF)

a curve that show the combinations of two products that can be produced with the finite resources

rationing price function

a rise in price to decrease demand for a product

renewable resource

a resource that can be replenished

scarcity

there are infinite wants but finite resources

signaling price function

tells producers that the price is wrong which influences economic decisons

trade

the buying and selling of goods and services

want

something which is desired and not necessary for survival