Basic economic problem
There are infinite wants but finite factor resources with
which to satisfy them.
Consumer surplus
The difference between the total amount that consumers are
willing and able to pay for a good or service and the total amount that they
actually pay (the market price).
Ceteris paribus
To simplify analysis, economists isolate the relationship
between two variables by assuming ceteris paribus – i.e. all other influencing
factors are held constant.
Political judgement
Judgements about policy measures depending upon the
political values held.
Positive statement
Objective statements that can be tested or rejected by
referring to the available evidence. Positive economics deals with objective
explanation.
Derived demand
Derived demand is demand that comes from (is derived) from
the demand for something else.
Capital goods
Producer or capital goods such as plant (factories) and machinery
and equipment are useful not in themselves but for the goods and services they
can help produce in the future.
Factors of production
Factors of production are the inputs available to supply
goods and services: Land, Labour, Capital and Enterprise.
Opportunity cost
The cost of any choice in terms of the next best alternative
foregone.
Utility maximisation
The assumption that consumers behave rationally in
allocating their limited budget between different products so as to maximise total
satisfaction from their purchases.
Production possibility frontier
A boundary that shows the combinations of two
or more goods and services that can be produced using all available factor
resources efficiently.
Productive potential
The amount of output an economy could produce if all of its
resources were fully and efficiently employed.
Allocative efficiency
Allocative efficiency occurs when the value that consumers
place on a good or service (reflected in the price they are willing and able to pay) equals the cost resources to produce the product
Demand
Quantity of a good or service that consumers are willing and able to buy
at a given price in a given time period.
Composite demand
Composite demand is when the good has multiple uses. So,
the demand for bricks is made up of many demands e.g. house building demand
and factory building demand. Milk can be made into cream, cheese, yoghurts etc.
Price elasticity of demand
Price elasticity of demand measures the
responsiveness or sensitivity of demand for a product following a change in its
own price.
Price mechanism
The means by which decisions of consumers and businesses
interact to determine the allocation of resources.
Economic model
A simplified representation of economic processes. This
representation can be used to gain a better understanding of the theory.
Joint supply
Joint supply describes a situation where an increase or decrease in
the supply of one good leads to an increase or decrease in supply of another by product.
