Unit 1 Definitions
AS Microeconomics Revision Booklet
Micro-Economics Definitions
THE ECONOMIC PROBLEM Economic Term | Definition | Opportunity Cost | The real cost of a good/service in terms of the next best alternative foregone. | Economic goods | Goods which have an opportunity cost. | Free goods | 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. | Saving | Foregoing present consumption in the hope of higher future consumption. | Investment | All additions to the capital stock. |
ALLOCATION OF RESOURCES IN COMPETITVE MARKETS Economic Term | Definition | Demand | 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. | Supply | 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
Micro-Economics Definitions
THE ECONOMIC PROBLEM Economic Term | Definition | Opportunity Cost | The real cost of a good/service in terms of the next best alternative foregone. | Economic goods | Goods which have an opportunity cost. | Free goods | 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. | Saving | Foregoing present consumption in the hope of higher future consumption. | Investment | All additions to the capital stock. |
ALLOCATION OF RESOURCES IN COMPETITVE MARKETS Economic Term | Definition | Demand | 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. | Supply | 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