Theme 1 - Microeconomics - Econ

• Model


  A theoretical concept that looks at how different variable interact
• ceteris paribus


  all other factors remain the same
• Positive statement 


  Objective, factually based comments that can be tested
• normative statement 


  subjective, questionable comments based on valued judgements that are difficult to test
• scarcity


  when there are unlimited human wants but limited number of resources to meet these wants
• economic problem 


  making choices on how to allocate scarce resources to best meet our needs and wants
• renewable resources


  can be replenished
• non-renewable resources


  finite supply, will run out
• sustainable resources


  used for economic activities in such a manner they wont run out
• opportunity cost


  the benefit lost of the next best alternative when making an economic choice
• production possibility frontier 


  depicts the maximum productive potential of an economy, using a combination of two goods or services, when resources are fully and efficiently employed

  
• factors of production

  1. Land
  2. labour
  3. capital
  4. enterprise
• productive efficiency


  when the economy uses minimum inputs to produce maximum output at lower cost
• allocative efficiency


  social welfare is maximised in the production of goods and services
• capital good


  goods used to make consumer goods and services
• consumer goods


  goods and services that satisfy our needs
• Production


  Measure of goods and services produced
• productivity


  measure of efficiency of factors of production measured by output per person em0ployed or output per person per hour
• Specialisation 


  Occurs when economic units focus on producing specific good or services
• division of labour


  specialised use of workers within an organisation
• economies of scale


  buying in bulk and getting goods with deals lowering the unit cost
• comparative advantage


  gains you get from specialising in on product
• GDP


  gross domestic product. the output of goods and services
• command economy

  resources are allocated by the government
• mixed economy


  resources are allocated by a combination of the market and the government
• free market economy


  there is no government intervention at all
• public goods


  goods and services that are non-excludable and available to everyone
• market failure


  occurs when the market is unable to efficiently allocate scarce resources to meet the needs of society
• government failure


  occurs when there is no intervention in markets and resources are mis-allocated
• negative externalities


  negative effects of consumption and production on third parties
• demerit goods


  goods that are considered socially undesirable and are over consumed within society
• merit goods


  goods considered to have a greater benefit that are usually under consumed in society
• instability in commodity markets


  prices of goods in a market are unstable and fluctuate due to a range of factors
• Private costs


  Those experienced by an individual firm or consumer
• external costs


  those experienced by third parties
• Marginal benefit 


  the benefit to a consumer of consuming more than one unit of a good or service
• marginal private benefit (MPB)

  the additional amount of satisfaction a consumer gains from an additional unit of a good or service
• Marginal private cost (MPC)


  the cost to a producer of producing one additional unit
• marginal social benefits (MSB)


  the benefit of the consumption of a good or service on society
• welfare gain


  a situation where social cost is lower than private cost and society gains as it does not have to pay the difference