theme 1 key terms

• economics 


  allocation of scarce resources to provide for unlimited human wants
• ceteris paribus


  all other things being equal
• positive statement


  based on facts

  can be tested/ proved
• normative statement 


  value judgement/ opinion

  cannot be tested
• scarcity


  finite resources compared to infinite wants
• opportunity cost


  the value of the next best alternative
• marginal analysis


  to gain unit of one thing means resources have be transferred from the production of another good
• renewable resources


  stock level will replenish naturally over a period of time
• non-renewable resources


  stock level decreases over time as its consumed

  cannot be replenished
• consumer good


  directly provides utility to consumers

  wanted for staisfaction
• capital good


  used to produce a consumer good/ service

  wanted for what it can produce eg machinery
• ppf - production possibility frontier


  maximum potential output an economy can achieve when all resources are fully and efficiently employed
• specialisation 


  the concentration on production of a limited range of goods and services

  aren't self sufficient + have to trade with others
• division of labour


  the specialisation of workers on individual tasks in the production process of a limited range of goods and services

  • specific task
• money


  anything that is acceptable in the payment of a good/service, debt
• free market economy


  resources are privately owned and allocated by the price mechanism

  minimal gov intervention

  consumers and producers make the decisions
• command economy


  public ownership of resources

  allocated by the gov
• mixed economy


  some resources are owned and allocated by the private sector and some by the public sector

  free market and gov. allocate resources
• market


  consumers and producers come into contact with eachother for the exchange good and services
• utility


  amount of satisfaction obtained from consumption
• rational decision making 


  firms use their resources to maximise profit

  consumers allocate their expenditure to maximise utility

  • perfect market info
  • computational and judgemental skills
  • decisions free from behaviour of others
  • sufficient time
• demand


  the quantity consumers are able and willing to buy

  at a given price at a given time
• demand curve


  quantity that would be bought over a range of price levels in a given period of time
• marginal utility


  utility or satisfaction obtained from consumed one extra unit of a good/service
• diminishing marginal utility


  as one consumes more of a good, the utility gained from each extra unit will fall

  demand curve slope downwards - less willing to pay high prices
• PED - price elasticity of demand


  the responsiveness of demand for a good/ service to change in its price

  • PED = %changeQD / %changeP
• total revenue


  price per unit X the quantity sold (PxQ)
• marginal revenue


  revenue gained by a firm by selling one extra unit of output
• YED - income elasticity of demand


  the responsiveness of demand for a good/service to a change in real income

  • YED = %changeQD / %changeY
• % change


  new - original / original x100
• normal good


  positive income elasticity of demand

  as real income rises so too does demand for the good

  YED > 0
• inferior good


  negative income elasticity of demand

  as real incomes rise demand for good falls

  YED < 0
• XED - cross price elasticity of demand


  the responsiveness to the demand for good B to the change in price of good A

  • XED = %changeQDofA / %changePofB
• supply


  the quantity that firms are willing to to sell at a given price and over a given period of time
• supply curve


  shows quantity that firms are willing to sell to a market over a range of different price levels in a given period of time
• PES - price elasticity of supply


  the responsiveness of the supply of a good/ service to a change in its price

  • PES = %changeQS / %changeP
• equilibrium price


  price where the quantity demanded = the quantity supplied in a market
• excess supply


  when price is set too high so supply is greater than demand
• excess demand


  when price is set too low so demand is greater than supply
• price mechanism


  allocation of resources in order to solve the economic problem of what, how and for whom to produce

  free market