TOPIC 1: Central Problem of Economics

Resources subtraction when one makes a choice

Anything and everything that can be used in the production of materials, goods and services.

opportunity cost

the next best alternative forgone.

Decision making at the margin

thinking about the net addition or subtraction when one makes a choice (decision based on the additional benefit and marginal opportunity cost)

Pareto Efficiency

Exist when it is not possible for someone to be made better off without someone else being made worst off.

Positive Statements

Factual statements that can be proven or disproven

Rational Choice

Involves weighing up the marginal benefits of each activity against its marginal opportunity cost

Relative Price

The price of one good compared with another(eg. good x is twice the price of good y)

Choice

The range of options available from which a decisions can be made.

Productive Efficiency

When a firm or economy produces maximum output at minimum cost.

Economics

comes from the Ancient Greek οἰκονομία from οἶκος (oikos, "house") and νόμος (nomos, "custom" or "law"), hence "rules of the house (hold for good management)".[

Economic Efficiency

A situation of producing maximum output from a given set of inputs

Allocative Efficiency

A situation where the current combination of goods and services produced and sold gives the maximum satisfaction to each consumer at current level of income.

Economics

A social science that studies human society and how they allocate their scarce resources to create wealth

Normative Statements

A statement of opinion that cannot be proven or disproven

Free Market Economy

Capitalism

Command or Planned Economy

Communism

Scarcity

Referred to as the central problem of economics, implies that there are not enough resources to meet the needs of all economic agents.

Functions of price mechanism

Signalling, Incentive, Rationing

Mixed Economy

Socialism or Capitalism or Welfare State