Theme 1 - Markets

• Economics

  The study of the allocation of scarce resources.
• Economic Goods

  Resources that are scarce.
• Short Run

  A time period where at least one factor of production is fixed.
• Long Run

  A time period where all factors of production are variable.
• Productivity

  The output per unit of input.
• The Economic Problem

  Resources are scarce but wants are infinite.
• Scarcity

  The world's resources are limited, there are only limited amounts of land, water, oil, food, etc..

  Therefore, resources are scarce.
• Free Goods

  Goods that are unlimited in supply and therefore have no opportunity cost.
• Economic Agents

  Consumer, Business and Governments.

  Agents involved in Economic transactions.
• Production Possibility Frontier

  The maximum potential output of a combination of goods an economy can achieve when all its resources are fully and efficiently employed, given the level of technology.

  
• Opportunity Cost

  The next best alternative foregone.
• Economic Growth

  Increase an economy's productive potential.
• Capital Goods

  Goods intended for use in production, rather than by consumers.
• Consumer Goods

  Goods designed for use by final consumers.
• Renewable Resources

  A resource whose stock level can be replenished naturally over a period of time.
• Non-renewable Resources

  A resource whose stock level decreases over time as it is consumed.
• Ceteris Paribus

  'All other things (factors) remaining the same'

  The assumption that all other variables within a model remain constant whilst the change is being considered.
• Positive Statement

  A statement based on facts which can be tested as true or false and are value-free.
• Normative Statement

  A statement based on value judgements which cannot be tested as true or false.
• Adam Smith

  The Father of Economics;

  - The Invisible Hand (workings of the Price Mechanism)

  - Specialisation

  - Division of Labour
• Division of Labour

  Specialisation of workers on specific tasks in the production process.
• Specialisation

  The process of breaking down the production process into steps and then each worker is assigned a step. This would then increase labour productivity (Output per Worker).
• Barter

  An exchange of goods/services for other goods/services.

  - Does not involve money.

  - Double coincidence of wants.
• Money

  Anything which is acceptable to a wide number of people and organisations as payment for goods and services.
• Free Market Economy

  Where all resources are privately owned and allocated via the price mechanism. There is minimal government intervention.
• Command Economy

  Where there is public ownership of resources and these are allocated by the government.
• Mixed Economy

  Where some resources are owned and allocated by the private sector and some by the public sector.
• Market

  A channel where goods and services are exchanged.
• Utility

  The capacity of a good or service to satisfy some human want.
• Rational Decision Making

  Where consumers allocate their expenditure on goods and services to maximize utility, and producers allocate their resources to maximize profits.
• Demand

  The quantity of goods or services that will be bought at any given price over a period of time.
• Demand Curve

  Shows the quantity of a good or service that would be bought over a range of different price levels in a given period of time.

  Slopes downward - Price and Quantity have an inverse (negative) relationship.

  
• Marginal Utility

  The additional satisfaction that a consumer gains for consuming one additional unit of a product.
• Diminishing Marginal Utility

  As successive units of a good are consumed, the utility gained from each extra unit will fall.
• % Change

  y2 - y1 / y1 × 100
• Price Elasticity of Demand (PED)

  The responsiveness of demand to changes in price.

  The value is always negative.

  
• Unitary Price Elasticity (Ped)

  Ped = 1
• Perfectly Price Inelastic (Ped)

  Ped = 0
• Price Inelastic (Ped)

  Ped is less than 1
• Perfectly Price Elastic (Ped)

  Ped = infinite