What is an economic good?
Goods which have an opportunity cost and suffer from the problem of scarcity
What is a free good?
Goods with no opportunity cost because there is no scarcity and they are not traded
What is the basic economic problem?
Unlimited wants but finite resources leading to scarcity
What is scarcity?
The shortage of resources relative to unlimited human wants
What are needs?
Basic requirements necessary for survival such as food, water and shelter
What are wants?
Desires that go beyond basic needs
What is a normative statement?
A subjective statement based on value judgements and opinions
What is a positive statement?
An objective statement that can be tested using evidence
What is labour?
Human effort and skills used in the production process
What is land?
Natural resources used in production
What is capital?
Man-made goods used in production
What is enterprise?
The willingness and ability to take risks and organise other factors of production
What are incentives?
Factors that motivate individuals to make decisions
What is maximisation?
Consumers aim to maximise utility and firms aim to maximise profit
What is resource allocation?
The distribution of resources between different uses
What is a market economy?
Resources are allocated through the price mechanism
What is a planned economy?
Resources are allocated by the government
What is a mixed economy?
A combination of market forces and government intervention
What is economic efficiency?
Resources are allocated in a way that minimises waste and maximises welfare
What is productive efficiency?
Producing goods at the lowest possible cost where MC=AC
What is allocative efficiency?
Resources are allocated to meet consumer preferences
What is opportunity cost?
The value of the next best alternative forgone
What is a trade-off?
Sacrificing one option to gain another
What does a production possibility frontier show?
The maximum output of two goods using available resources
