1- Economic methodology and the economic problem.

Allocative efficiency

When economic resources are utilised to produce the combination of goods and services that maximise economic welfare.

Allocative price function

Prices allocate resources away from markets with excess supply to markets with excess demand.

Capital

Producer goods

Capital/Producer goods

Goods used in the production of other goods.

Ceteris paribus

All other things being held constant.

Choice

Selecting one of multiple alternatives when deciding how to allocate scarce resources.

Consumer good

Goods consumed by households or individuals, used to satisfy needs and wants.

Economic welfare

The economic satisfaction/wellbeing of individuals, households or groups in an economy.

Enterprise

The ability to utilise factors of production effectively.

Factors of production

Inputs of the production process, such as land, labour, capital, and enterprise.

Finite resource

Non-renewable resource that becomes increasingly scarce.

Fundamental economic problem

Deciding how to best allocate scarce resources to maximise overall economic welfare.

Imperfect information

When individuals lack the information to make the best decision.

Incentive price function

Price creates incentive for people to adjust their economic transactions.

Infrastructure

Facilities required for an economy to function.

Labour

Workers with human capital.

Land

Natural physical material, as well as space for fixed capital.

Need

Something necessary for human survival.

Normative statement

Statements including value judgements, that cannot be easily proved/disproved.

Opportunity cost

Loss of other alternatives due to selecting one of a set of options.

Pareto efficiency

State of resource allocation, where in order to make an economic agent better off, another agent is made worse off.

Positive statement

Statements including facts, that can easily be proved/disproved

Production possibility frontier

A curve displaying the various possible combinations of two products that can be produced with finite resources.

Rationing price function

Prices rise to ration demand for goods.

Renewable resource

Restorable resources that can be replenished.

Scarcity

Resulting from the consept of infinites wants and needs, yet limited resources.

Signalling price function

Prices provide information to sellers and buyers, influencing economic decisions.

Trade

Buying and selling of goods and services.

Value judgements

Statements that are subjective and based on opinion rather than factual evidence.

Want

Something desirable, yet not necessary for human survival.

Economic system

the set of institutions within which a community decides what, how, and for whom to produce.

Market economy

an economy in which goods and services are purchased through the price mechanism in a system of markets

Command economy / planned economy

An economy in which government officials or planners allocate economic resources to firms and other productive enterprises

Mixed economy

An economy that contains both a large market sector and a large non-market sector in which the planning mechanism operates

Production

Converts inputs or factor services into outputs of goods and services

technical progress

new and better ways of making goods and new techniques for producing more output from scarce resources

full employment

when all who are able and willing to work are employed

resource allocation

the process through which the available factors of production are assigned to produce different goods and services

economic growth

the increase in the potential level of real output the economy can produce over a period of time

productive efficiency

occurs for the economy as a whole when it is impossible to produce more of one good without producing less of another. for a firm it occurs when the average total cost of production is minimised.