microeconomics topic 1

What is a positive statement

objective and based on facts

what are normative statements

opinion based

what is the basic economic problem

resources are finite but the wants of people are infinite

what are the 3 economic agents

the government,Firms and households

What are the objectives of the economic agents

maximise utility,profit and welfare

what are the factors of production

Land,Labour,Capital,Enterprise

What are the rewards for the factors of production

rent,wages,interest,profits

What is a market economy and what are the pros and cons?

No state intervention in markets; resources are allocated purely by the markets supply and demand

Pros-efficiency, innovation,variety of goods

Cons- inequality and market failures

What is a mixed economy

Markets operate freely but with some state intervention

What is a planned economy and what are the pros and cons?

No free markets-resources are allocated by the government-all workers get the same income

Pros- Equal wealth distribution,less unemployment

Cons- inefficiency,lack of innovation, shortages/surpluses

What is productive efficiency

produces goods or services at the lowest possible cost. bottom of ac curve

What is allocative efficiency

where price=mc, consumers are willing to pay for these goods so resources are not wasted.

When is it said to be economically efficient

when an economy is both allocatively and productively efficient

what is opportunity cost

the cost of a choice;it is the cost of the next best option sacrificed

what is the formula for opportunity cost

what is sacrificed/what is gained