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The condition in which human wants are forever greater than the available supply of time, goods, services and resources.
The basic categories of inputs used to produce goods and services.
- Factors of production
- - Land
- - Labour
- - Capital
A shorthand expression for any resource provided by nature.
Basic inputs that nature can automatically replace without interference from human beings.
Lakes, crops, animals, clean air.
Basic inputs that nature will not automatically replace.
Coal, oil, copper, iron ore.
The mental and physical capacity of workers to produce goods and services.
The creative ability of individuals to seek profits by combining resources to produce new or existing products.
The physical plant, machinery and equipment used to produce other goods.
Capital goods are human-made goods that do not directly satisfy human wants.
Industrial Revolution - tools, axe, hoe bow and arrow.
Today - factories, buildings, trucks, computers.
The study of how society chooses to allocate its scarce resources to the production of goods and services in order to satisfy unlimited wants.
The branch of economics which studies the decision-making by a single individual, household, firm or industry.
The branch of economics which studies the decision-making for the economy as a whole.
Methodology of Economics
- Identifying the problem
- Developing a model
- Testing the model
A simplified description of reality used to understand and predict the relationship between variables.
A Latin phrase that means while certain variables change, 'all other things remain unchanged'.
A branch of economics in which more comprehensive assumptions about human behaviour are employed.
- - Pleasure/pain principle
- - Ethical and moral beliefs
A branch of economics in which experiments designed to mimic real-world scenarios are used to explore aspects of human behaviour relevant to economics.
An analysis limited to verifiable statements.
An analysis based on value judgements.
Good, bad, should, ought, need...
Involves members of the community respecting the laws and social mores of society while they pursue their own individual goals.
A positive association between two variables.
Increase/decrease in one = Increase/decrease in the other
A negative association between two variables.
An increase/decrease in one = a decrease/increase in the other
The ratio of the changes in the variable on the vertical axis to the change in the variable on the horizontal axis.
Slope = rise/run
No association between two variables.
One changes, the other remains unchanged.
Indicate the changes in the value of a variable over time where the value of a variable in the base year is set at 100.
Means of clearly showing economic relationships in two-dimensional space.
Occur when there is a change in one of the variables shown on the coordinate axes of the graph.
Occur when there is a change in a variable that is not shown on the coordinate axes of the graph (ceteris paribus is relaxed).
3 Fundamental Economic Questions
- What to produce
- How to produce
- For whom to produce
The best alternative sacrificed for a chosen alternative.
An examination of the effects of additions to or subtractions from a current situation.
It considers the effect of change.
Production Possibilities Frontier (PPF)
Shows the maximum combinations of two outputs that an economy can produce, given its available resources and technology.
Scarcity limits the economy to points on or below its PPF.
The body of knowledge applied to how goods and services are produced.
- Fixed resources
- Fully employed resources
- Technology unchanged
Law of Increasing Opportunity Costs
The principle that the opportunity cost increases as the production of one output expands.
The ability of an economy to produce greater levels of output, represented by an outward shift of its PPF.
Achieving Economic Growth
- Changes in resources
- - Any increase in resources will shift the PPF outward.
- Technology change
- - Research and development of new technologies.
The process of producing capital, such as factories, machines and inventories.
Gains from Trade
Comparative advantage - the ability of a country to produce a good at a lower opportunity cost than another country.