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