AS Microeconomics Revision Booklet
THE ECONOMIC PROBLEM
| The real cost of a good/service in terms of the next best alternative foregone.
| Economic goods
| Goods which have an opportunity cost.
| Goods which don’t have an opportunity cost.
| Normative statements
| Based on opinion, have some valued judgments.
| Positive statements
| Value-free, objective, based upon testable theories, fact.
| The economic problem
| There is an unlimited want but limited resources.
| Factors of production
| Land, Labour, Capital, Enterprise
| Planned economy
| Communist, government intervention, the public sector.
| Market economy
| Capitalist, decisions are up to the individual, private sector.
| Mixed economy
| An economy made up of both capital and communists.
| Production possibility frontiers
| Shows all the combinations of two products given current level resources.
| Foregoing present consumption in the hope of higher future consumption.
| All additions to the capital stock.
ALLOCATION OF RESOURCES IN COMPETITVE MARKETS
| Is the willingness and ability to purchase a product at the prevailing price in a given time period.
| Consumer surplus
| Occurs when consumers pay less than they would have been willing to pay.
| Is the willingness and ability of producers to put a product onto the market at a prevailing price in a given time period.
| Producer Surplus
| Occurs when producers receive more for their product than they were willing to accept.
| Equilibrium Price
| Where the supply is equal to demand.
Price elasticity of demand
| The proportionate change in quantity demanded in response to the change in price.
| Relatively elastic demand
| PED>1 the proportionate change in quantity demanded is less than the proportionate change in price.
| Relatively inelastic demand
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