Economics Unit 1.1: Nature of Economics & Demand

Model

A simplified representation of reality used to provide insight into economic decisions and events.

Ceteris paribus

A Latin phrase meaning 'other things being equal', used when focusing on changes in one variable while holding other influences constant.

Social science

A subject involving the scientific study of human beings.

Positive statement

A statement about what is, which is based on facts and in principle testable.

Normative statement

A statement that involves a value judgement about what ought to be.

Value judgement

A statement based on opinion or beliefs rather than on facts.

Scarcity

A situation that arises when people have unlimited wants in the face of limited resources.

Free goods

Goods such as the earth's atmosphere that are not normally regarded as being scarce.

Economic goods

Goods that are scarce.

Poverty

A situation in which individuals lack basic necessities of life or have low incomes relative to fellow citizens.

Opportunity cost

In decision making, the value of the next-best alternative forgone.

Marginal analysis

An approach to economic decision making based on considering additional benefits and costs of a change in behaviour.

Factors of production

Resources used in the production process, particularly including labour, capital, land, and enterprise.

Renewable resources

Natural resources that can be replenished, such as forests or solar energy.

Non-renewable resources

Natural resources that once used cannot be replenished, such as coal or oil.

Production possibility frontier (PPF)

A curve showing the maximum combinations of goods or services that can be produced in a given period with available resources.

Trade-off

A situation in which the choice of one alternative requires the sacrifice of another.

Capital goods

Goods used as part of the production process, such as machinery or factory buildings.

Consumer goods

Goods produced for present use and consumption.

Potential economic growth

An expansion in the productive capacity of the economy through increased availability or productivity of inputs.

Gross domestic product (GDP)

A measure of the economic activity carried out in an economy over a period.

Division of labour

A process whereby the production procedure is broken down into a sequence of stages, and workers are assigned to a particular stage.

Market

A set of arrangements that allows transactions to take place.

Free market economy

An economy in which market forces are allowed to guide the allocation of resources without government intervention.

Command economy

An economy in which decisions on resource allocation are guided by the state.

Mixed economy

An economy in which resources are allocated partly through price signals and partly through state intervention.

Microeconomics

The study of economic decisions taken by individual economic agents, including households and firms.

Macroeconomics

The study of interrelationships between economic variables at an aggregate economy-wide level.

Utility

The satisfaction gained by a consumer from consuming a product or combination of products.

Demand

The quantity of a good or service that consumers are willing and able to buy at any given price in a given period of time.

Diminishing marginal utility

The situation where an individual gains less additional utility from consuming a product the more of it is consumed.

Law of demand

A law stating an inverse relationship between quantity demanded and the price of a good or service, ceteris paribus (A Latin phrase meaning 'other things being equal').

Demand curve

A graph showing how much of a good will be demanded by consumers at any given price.