A social science which studies how humans allocate scarce resources to meet their unlimited wants and needs
Scarcity
The degree to which the demand for a product outweighs its supply which drives the economy
Choice
The selection of one good or service over another
Money cost
The actual cost of a good or service
Opportunity cost
The next best alternative which is given up when a choice is made
Goods
Tangible items that are used to satisfy wants and needs
Services
Actions done that satisfy wants and needs. You can not see or touch a service but can see and touch the results of a service that has been performed
Production possibilities frontier/curve/boundary
A graphical representation of the possible levels of production for bundles of two goods assuming all resources are utilised
Economic efficiency
An economy where there is both full employment and full production
Full production
When the economy employs the best available methods (technology-aided) to produce goods and services
Productive efficiency
When resources are employed in the most efficient manner, and there is no waste
Allocative efficiency
The combination of goods produced is what is desired by society
Full employment
When the economy employs all its resources to produce goods and services
Productive waste
When resources are not employed in the most efficient manner
Allocative waste
When the blend or mixture of goods produced is not the combination desired by society
Personal choice
The desire for a good/service that is acted upon by a consumer. People generally purchase goods that they want or need
Income
The level of a person's income and how much can be purchased. If taxes and statutory deductions increase, people will have less money to spend. One must also note the level of a person's savings
Bandwagon effect
When someone buys a product because everyone else is buying it. This is usually the case when a good becomes highly popular among a certain group of individuals
Level of education
The higher the level of education, the more money a person will have at his disposal. This can increase his spending and savings over time
Peer pressure
Persons will spend or save based on influence from peers. For example, saving to buy a Blackberry or going to KFC on Fridays
Firms
Production units, organized to produce goods and services used by the households
Cost of production
When the cost of production increases the output of FIRMS generally increases. This occurs because the goods/ services become less profitable and it is better to divert investments to more profitable goods
Resource base
The quality and quantity of resources available to a firm
Industrial relations
The relationship between employers and employees must be good. If harmony does not exist, it will have a negative impact on the firm and productivity will be low. It is also necessary to project a good corporate image
Change in demand
When there is a fall in demand for a product the FIRM will produce less of the item and vice versa
Taxes
Taxes may be added to the price of a good which would help to limit the consumption of that good. E.g. Tax placed on cigarettes. A tax may be placed on the production of a good to limit how much is created
Industrial zones
These encourage and facilitate the activities of firms by giving them a safe space in which to operate
Provision of infrastructure
The government can enhance business by providing access to clean running water, good roads, garbage collection, access to electricity etc. This increases the chances of consumers and supplies being able to access the business easily
Factors of production
All economic resources that are used in the production of a good or service
Land
The naturally occurring resources that are used to produce a good or service. Land includes the physical land and everything on and in it. Land also includes all water bodies and the atmosphere and everything contained within them
Labour
All human effects which are used in the production process
Division of labour
When a large task is split up into smaller more manageable tasks
Specialization of labour
A situation in which a person does a task repeatedly and becomes an expert at it
Labour force
The number of persons in an economy of legal working age who are willing to work
Capital
Man-made goods used to produce other final goods
Working capital
Raw materials and intermediate goods used in the production process
Fixed capital
The factories and machinery used in the production process. This is also called physical capital
Social capital
Infrastructure provided by the government to improve economic output. These include roads, schools, hospitals etc.
Human capital
All the knowledge, skills, attitudes, aptitudes and characteristics possessed by a person
Entrepreneurship
The act of taking the necessary risks required to combine the other factors of production in order to operate a profitable business