Chapter 1 : Basic economic ideas and resource allocation
Specialization
the process by which individuals,firms,and economies concentrate on producing goods and services where they have an advantage over others.
Production
the process of creating goods and services in an economy.
Moral hazard
the tendency for people who are insured or otherwise protected to take greater risks.
Exchange rate
the value of one currency compared to another's
Economic structure
the way in which an economy is organised in terms of sectors
Short run
time period when a firm can only change some and not all factor inputs.
Long run
time period when all factors of production are variable.
Very long run
time period when all key inputs into production are variable.
Social Science
to adopt a scientific framework but is particularly concerned with studying the behavior of humans as consumers, in business or in taking decisions about the economy as a whole
Forecast
to predict future conditions of the economy
Choice
underpins the concept that resources are scarce so choices have to be made by consumers, firms and governments.
Continuous Data
values can be measured in a specific way, but not confined to whole numbers
Medium of exchange
what buyers use for purchases; sellers are willing to accept this medium in exchange for these purchases.
Division of labour
where a manufacturing process is split into a sequence of individual tasks.
Market
where buyers and sellers get together to trade.
Rivalry
where consumption by one person reduces availability for others
Market mechanism
where decisions on price and quantity are made on the basis of demand and supply alone
Adverse selection
where information failure results in someone who is unsuitable obtaining insurance.
Non-excludable
where it is not possible to stop all benefitting from consumption
Excludability
where it is possible to exclude one from consumption
Information failure
where people do not have full or complete information
Reallocation of resources
where resources are deliberately moved from one product to another
Trends
year-year changes
Economics
1.the most efficient use of scare resources so that private and social welfare may be improved 2.framework for studying how individuals, households, firms, government, global organizations behave and take a wide range of decisions
Demand
the popularity in terms of consumption surrounding a particular product
Consumption
the process by which consumers satisfy their wants.
Capital goods
Goods produced for the sole reason to aid in man made production
Scale of preferences
The choices on where to spend money
Hyperinflation
When the buying power of a certain currency loses most of its value
Capital
a man-made aid to production .
Production possibility curve
a simple representation of the maximum level of output that an economy can achieve when using its existing resources in full
Scarcity
a situation in which wants and needs are in excess of the resources available.
Paternalism
a situation where society knows best and has some right to make a value judgement,
Macroeconomics
the part of economics concerned with large-scale or general economic factors, such as interest rates and national productivity
Factor endowment
amount of factor of productions a country possesses and can exploit for manufacturing
Inflation
an increase in prices and fall in the purchasing value of money
Money
anything that is generally acceptable as a means of payment
Factors of production
anything that is useful in the production of goods and services.
Non-rival
as more consume, the benefit to those already consuming is not diminished
Needs
basic commodity that must be satisfied for survival
Store of wealth
can be stored for a period of time with a bank/etc. Money is a measure of value over time. Represents a source of wealth to its owner
Interest
charge for borrowing money
Private goods
consumed by someone and not available to anyone else
Index number
data figure reflecting price or quantity compared with a standard or base value.
Liabilities
debt obligations
Liabilities
debts
Secondary sector
make something out of the raw materials
Barter
exchange between two different goods or services without the use of money
Free goods
free stuff
Risk
future uncertainty about deviation from expected earnings or outcomes. It measures the uncertainty that an investor is willing to take to realize a gain in an investment
Quasi-public good
goods that have some but not all of the characteristics of public goods
Consumer goods
goods that satisfies the consumers wants or needs and have no value in productive use for production
Unit of account
how prices are quoted. (i.e. in the USA we use dollars and cents)tells us how much money is required for a particular transaction. The account aspect allows the sum of money to be recorded and for different values to be added or compared
Labour
human resources available in an economy.
Time Series Data
information recorded over a period of time
Resources
inputs available for the production of goods and services.
Quaternary sector
knowledge-based part of an economy, provisions of info. Scientific research, R&D
Land
natural resources in an economy.
Wants
needs that are not always realized.
Near money
non-cash assets that can be quickly turned into cash
Developing economy
one that has a low income per head
Merit good
one that has a positive side effects when consumed
Demerit good
one that has an adverse side effects when consumed
Positive statement
one that is based on empirical or actual evidence.
Public good
one that is non-excludable and non-rival and for which it is usually to charge a direct price
Normative statement
one that is subjective about what should happen.
Mixed economy
one where market forces and government, private and public sectors are involved in resource allocation decisions
Market economy
one where most decisions are taken through market forces.
Command/planned economy
one where resource allocation decisions are taken by a central body
Entrepreneur
organizes production and is willing to take risks.
Standard for deferred payments
payments made in parts like monthly or annually. It can be made in the future depending on the terms agreed by both parties.
Baby boomers
people born between 1946-1964
Unemployment
the action of not being in the workforce receiving a paycheck or salary
Manufacturing
production of goods
Primary sector
raw materials
Economic growth
represented by a shift outwards of the production possibility curve
Fundamental economic problem
scarce resources relative to unlimited wants.
Tertiary sector
servicing sector: retail, transportation, etc
Free rider
someone who does not pay to use a public good
Supply
the amount available to sell to consumers
Capital consumption
the capital required to replace that which is worn out
Opportunity costs
the cost expressed in terms of the best alternative that is forgone .
Investment
the creation of capital goods
Production frontier
the curve that defines the economy's production possibilities between two products
Factor mobility
the ease by which factors of the production can be moved around
Liquidity
the extent to which there is an adequate supply of assets that can be quickly turned into cash
Economic system
the means by which choices are made in an economy
Microeconomics
the part of economics concerned with single factors and the effects of individuals decisions