OCR A LEVEL ECON MICRO DEFINITIONS

Economic theory

abstract representation of how economic variables interact with each othe

Economic model

representation of how economic variables interact with each other expressed in mathematical terms (equations or diagrams)

Ceteris parabus

“all else being equal”

Positive statement

factual statement that can be proven and verified by resorting to further investigation

Normative statement

Statement based on opinion that cannot be justified by resorting to further investigation.

Problem of scarcity

insufficient resources to meet unlimited wants.

Opportunity cost

the next best alternative forgone/sacrificed when an economic decision made

Economic goods

scarce because limited resources have been used in their production. there is an opportunity cost associated with producing economic goods.

Free goods

goods that do not involve the use of scarce resources. No opportunity cost

Land

refers to all natural resources utilized in the production process.

Labour

refers to the human effort that is used in production process.

Capital

human made aid/goods that are used to produce other goods and services.

Enterprise

entrepreneurs that are risktakers who organise the other factors of production.

Pure command economy

resources are allocated outside/without markets via a planning mechanism. Heavy amounts of government intervention or central state planning

MIXED ECONOMY

contains large market and non market sectors

Market sector

parts of the economy where goods and services primarily sold via supply and demand like a free market economy

Non market sector

parts of the economy where goods and services are provided by the government mostly

PURE MARKET ECONOMY

the price mechanism allocates resources in markets (supply and demand, like a free market economy)

COMMUNIST ECONOMY

Means of production are commonly/publicly owned

MIXED ECONOMY

Mixed ownership of production by private and public sectors

CAPITALIST ECONOMY

Means of production and privately owned

Production possibility curve

shows the maximum output combinations of two goods and services that can be produced when fully utilising current resources and technology in a given period of time.