def

• What are free goods?

  Goods that are not scarce and available without limits, with zero opportunity cost, e.g., air.
• What are economic goods?

  A consumable item that is useful to people but scarce in relation to its demand.
• What is opportunity cost?

  The value of the next best alternative foregone.
• What is a positive statement?

  An objective statement that can be tested, amended, or rejected by referring to available evidence.
• What is a normative statement?


  A value judgement that is a subjective statement of opinion rather than a fact that can be tested.
• How are needs defined in economics?

  Goods or services that are required and cannot be done without.
• How are wants defined in economics?

  Goods or services that are not a necessity but are desired or wished for.
• What does the cost-benefit principle state?

  Every purchase is a trade-off.

  
• What are rational decision makers assumed to do?

  Weigh the marginal benefit received from a good or service against its marginal cost.
• Who are economic agents?

  Decision makers that affect the economy by buying, selling, producing, investing, taxing, etc., including government, firms, and households.
• What is the role of the government in the economy?

  The elected representative of consumers that should act on behalf of the people, deciding whether to intervene in the economy or leave it as is.
• What is a firm?

  An organization that uses factors of production to produce goods and services demanded by consumers.
• What is the role of households in the economy?

  A group of consumers that buy goods and services and supply their labor to firms to earn income.
• What are the factors of production?

  The available resource inputs used in the production process of goods and services: Capital, Enterprise, Land, and Labour.
• What is capital in economics?

  Man-made aids for production; goods used to make other goods.
• What is entrepreneurship?

  The willingness of an entrepreneur to take risks and organize production.
• What is labour in economics?

  The human resource that is available in the economy; the quantity and quality of human resources.
• What is land in economics?

  The natural resources available in the economy; the quantity and quality of natural resources.
• What are the factor payments/rewards for the factors of production?

  • Capital: Interest
  • Enterprise: Profits
  • Labour: Wages
  • Land: Rent
• What is the definition of microeconomics?

  Microeconomics is the study of individual economic units and their interactions.
• What does labour equal in economic terms?

  Labour equals wages.
• What does land equal in economic terms?


  Land equals rent.
• What is a model in economics?

  A model is a simplified representation of reality used to create hypotheses about economic decisions and events.
• What is production in economic terms?

  Production is any economic activity that leads to a flow of goods and services for which people are willing and able to pay.
• What does the production possibility frontier represent?

  The production possibility frontier shows the maximum quantities of different combinations of goods and services that can be produced in a set time period given the available resources and current state of technology.
• What is the law of diminishing returns?

  The law of diminishing returns states that as a firm adds variable factors of production (usually labour) to fixed capital, the marginal returns that the firm gains will gradually begin to decrease.
• What is a consumer good?

  A consumer good is a finished good that is sold for consumption.
• What is a capital good?

  A capital good is any tangible asset that an organization uses to produce goods or services, such as office buildings and machinery.
• What is specialization in economics?

  Specialization is when individuals, businesses, and whole economies concentrate on producing certain goods and services, then trading their surplus.
• What is division of labour?

  Division of labour is the assignment of different parts of a manufacturing process or task to different specialized people in order to improve efficiency.
• What is productivity?

  Productivity is the output of a good or service per factor of production per period of time.
• What are the functions of money?

  • Medium of exchange: Accepted universally for payment.
  • Unit of account: Allows comparison of value.
  • Standard of deferred payment: Used to pay back debt.
  • Store of value: Non-diminishable for future transactions.
• What is resource allocation?

  Resource allocation is the way in which a society's factors of production are divided amongst their alternative uses.
• What are the objectives of households in economics?

  Households make decisions about how to allocate expenditure based on the utility they derive from consuming a good or service.
• What are the objectives of firms?

  Firms make decisions about what to produce and how much to produce in order to receive a return/profit for their endeavours.
• What are the objectives of the government in economics?

  The government's objectives are to maximize social welfare through decision-making regarding taxation, public expenditure, and regulation.
• What is utility maximization?


  Utility maximization is the aim of trying to achieve the highest level of satisfaction possible from the consumption or production of a good.
• What is profit maximization?

  Profit maximization is the aim of trying to achieve the highest levels of profit possible.
• What are the incentives for households?

  Household decisions depend on the benefits gained from consumption relative to the costs involved, including price and opportunity cost.
• What are the incentives for firms?

  Firms' decisions depend on the potential profits that supplying a product can create.