Ceteris Paribus
Latin phrase meaning ‘all other things held equal’. Used when focusing on changes in one variable while holding other influences constant.
Positive Statement
Objective statements that can be proved or disproved by reference to factual data or evidence.
Normative Statement
Statements based on value judgements (subjective opinions) rather than facts that can be tested by evidence.
The Basic Economic Problem
The conflict arising because society has finite resources but infinite wants, causing scarcity and the need for choices.
Factors of Production
The resources used to produce goods and services: capital, enterprise, labour, and land.
Renewable Resources
Resources that can be naturally replenished, such as solar and wind energy.
Non-renewable Resources
Natural resources that are not replenished at the speed they are consumed, such as coal or oil.
Opportunity Cost
The benefit forgone of the next best alternative option when a choice is made.
Production Possibility Frontier (PPF)
The maximum possible output combination of two goods or services an economy can achieve when all resources are fully and efficiently employed.
Capital Goods
Goods used to produce other goods, such as machinery.
Consumer Goods
Goods that have no economic use after they are consumed, such as food or pens.
Division of Labour
Occurs when a production task is broken down into small parts with workers specializing in a particular task
Specialisation
Occurs when a worker, business, region, or country concentrates on a specific product or task so skills, efficiency and knowledge improve
Free Market Economy
An economy where all resources are allocated by the price mechanism rather than through government planning.
Command Economy
A centrally planned economy where resources are allocated by the state.
Mixed Economy
An economy where resources are allocated through both government planning and the price mechanism.
Rational Consumer Objective
The assumption that a rational consumer aims to maximise their utility (satisfaction).
Rational Producer Objective
The assumption that a rational producer aims to maximise profit.
Demand
The quantity of a good or service purchased at any given price, ceteris paribus.
Utility
The satisfaction or happiness obtained from consuming a good or service.
Marginal Utility
The happiness or satisfaction gained from consuming one additional unit of a good or service.
Law of Diminishing Marginal Utility
States that as consumption of a good increases, the satisfaction derived from each additional unit decreases.
Price Elasticity of Demand (PEd)
Measures the responsiveness of quantity demanded to a change in the price of the good.
Income Elasticity of Demand (YEd)
Measures the responsiveness of quantity demanded to a change in real income.
