Economics - Chapter 1

  • Created by: sammilaw
  • Created on: 30-10-14 20:14
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  • CHAPTER 1: The Economic Problem
    • Economic goods - goods that are scarce, so involve an opportunity cost
    • Opportunity cost - the next best alternative forgone when an economic decision is made
    • Free market economy - one in which there is limited government involvement in providing goods &services. Main role - to ensure that the rules of the market are fair
    • Free goods - goods that have no opportunity cost
    • Profit - when total income/revenue > total costs
    • Production possibility boundary - indicates maximum possible output that can be achieved given a fixed set of resources and technology in a particular time period
    • Productive efficiency - when a firm operates at minimum average cost, producing the maximum possible output from inputs into the production process
    • Allocative efficiency - when it is not possible to make someone better off without making someone worse off
    • Productivity - a measure of efficiency, ratio of inputs to outputs
    • Human capital - the skills, abilities, motivation & knowledge of labour. Improvements in human capital raise productivity (shift PPB to the right)
    • Specialisation - the production of a limited range of goods by an individual factor of production, in co-operation with others so that together a complete range of goods is produced.
    • Value judgements - Statements/opinions that cannot be verified
    • Normative statement - Opinions that require value judgements to be made
    • Positive statement - Statements that can be backed up by real-life data


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