Micro Economics Definitions Theme 1 CC1

Basic Economic Problem

Resources are finite but human wants are infinite

Command (planned) economy

An economic system where resources are allocated by the state

Division of labour

Specialisation by workers where the production of a good is broken up into many separate tasks each performed by one person

Economic good

A scarce good and there is an alternative use for them, opportunity cost exists

Free good

A good that is not scarce, is in unlimited supply, and has no opportunity cost to society

Free market economy

An economic system where resources are allocated by the price mechanism (demand and supply)

Mixed economy

An economic system where resources are allocated by both the price mechanism and by the state

Needs

Something you must have in order to have a satisfactory life

Normative statement

A statement which cannot be proved or tested using evidence, it is a value judgement

Opportunity cost

Measures the value (benefit) of the next best alternative use of resources foregone

Positive statement

A statement which can be tested by looking at evidence and either proved as fact or refuted

Production Possibility Frontier Curve (PPF)

The maximum possible output combinations of two goods or services using all available resources in the most efficient way with a given level of technology

Renewable Resources

Replenished by natural processes

Specialisation

A system of organisation where economic units such as households or nations are not self sufficient but concentrate on producing certain goods and services and trading the surplus with others

Wants

Something desirable, but not essential for a satisfactory life