Terms in this set (51)
The study of how scarce resources can be best allocated amongst all their alternative uses to satisfy the unlimited wants and needs of people
The study of how households and firms make decisions regarding the allocation of limited resources and how they interact in specific markets as individual
The branch of economics that examines the behavior of the economy as a whole e.g. level of unemployment
Increases in total real output produced by an economy (real GDP) over time; may also refer to increases in real output per capita.
Broad-based rises in the standard of living and well being of a population, particularly in economically less developed countries. It involves increasing income levels and reducing poverty, reducing income inequalities and unemployment, and increasing provision of and access to basic goods and services such as food and shelter, sanitation, education and health care services. Measured by the human development index, through measurements such as level of education.
the method of holding all but one of the variables constant in a theoretical model
the condition in which available resources (land, labor, capital, entrepreneurship) are not enough to produce everything that human beings need and want
the next best alternative foregone when an economic decision is made
may be proven to be right or wrong by looking at the facts
matter of opinion and cannot be conclusively proven to be right or wrong
any good that is not scarce (can consume in infinite quantities) and therefore has a zero opportunity cost. Since it is not limited by scarcity, it includes anything that can be obtained without sacrificing something else. e.g. salt water and air
Any good that is scarce, either because it is a naturally occurring scarce resource such as oil, gold, coal, forests, lakes), or because it is produced by scarce resources. All economic goods have an opportunity cost greater than zero.
a curve which indicates production possibilities = the maximum combination of any two goods which an economy could produce if all its resources were fully employed and organized as efficiently as possible, in a given time period and technological level.
Production possibility curve (PPC)
increase in actual output by using previously unemployed resources, or using resources more efficiently
The quantity of output actually produced by an economy. In a PPF (VS production possibilities), it could be any point on the PPF or to the left of the PPF (usually inside an economy's PPF due to presence of unemployed resources and productive inefficiency). While in an AD-AS model (VS potential output), actual output may be higher or lower than potential output (given my the position of an economy's LRAS curve) (if there is an inflationary or deflationary gap) or it may be equal to potential output (if the economy is in long-run equilibrium)
The level of output (real GDP) that can be produced when unemployment is at its natural rate (THIS IS NOT FOR PPF only for AD-AS) (295)
increase in production possibilities by an increase in the quality and/or quantity of resources
An economy manages to produce the maximum combination of goods and services most wanted by society. It is achieved when the economy allocates its resources so that no one can become better off in terms of increasing their consumption without someone else becoming worse off.
the absence of waste in the production process (any point on PPF)
Refers to the difference between the highest prices consumers are willing to pay for a good and the price actually paid. In a diagram, it is shown by the area under the demand curve and above the price paid by consumers.
Refers to the difference between the price received by firms for selling their good and the lowest price they are willing to accept to produce the good. In a diagram, it is shown by the area under the price received by producers and above the supply curve.
(a theoretical allocation (rationing) system) resources are owned by private individuals or groups of individuals, and it is mainly consumers and firms (or businesses) who make economic decisions by responding to prices that are determined in markets.
Also allocative efficiency is achieved, producing the combination of goods most wanted by society (what to produce). Productive efficiency is also achieved, involving production with the fewest possible resources (how to produce) = economic efficiency/Pareto optimality, social surplus is also maximized
free market system
(a theoretical allocation (rationing) system, sometimes known as command economies) decisions on what to produce, how to produce, and who to produce for, are made by a central body, the government. All resources are collectively owned. Government bodies arrange all production, set wages, and set prices through central planning. The government make decisions on behalf of the people.
Taxes levied on spending to buy goods and services, called indirect, because whereas payment of some or all of the tax by the consumer is involved, they are paid to the government authorities by the suppliers (firms), that is indirectly.
Taxes imposed on spending on particular goods and services (e.g. cigarettes); are a type of indirect tax.
imposed on spending on all goods and services
general sales tax
Taxes paid directly to the government tax authorities of the taxpayer, including personal income taxes, corporate income taxes and wealth taxes.
a fixed amount of tax per unit of the good or service sold (causes a parallel upward shift of the supply curve)
Taxes calculated as a fixed percentage of the price of the good or service; the amount of tax increases as the price of the good or service increases.
Ad valorem tax
Individuals or groups of individuals who have an interest in something and are affected by it
Assistance by government to individuals or groups of individuals
Cash payment by the government to firms, fixed amount per unit of output produced
the setting of minimum or maximum prices by the government (by private organization) so that prices are unable to adjust to their equilibrium level determined by demand and supply => results in market disequilibrium, and therefore in shortages or surpluses
caused when market is prevented from reaching a market clearing price, resulting in surpluses and shortages = misallocation of resources and welfare losses
A legal price set by the government, which is below the market equilibrium; this does not allow the price to rise to its equilibrium level determined by a free market; also known as a price ceiling.
e.g. Rent controls and food price controls
maximum legal rent on housing
Rent controls (price ceiling)
A legal price set by the government which is above the market equilibrium price; this does not allow the price to fall to its equilibrium level determined by a free market; also known as a price floor.
Minimum prices (or price floors) set by the government for agricultural products.
A minimum price of labor set by governments in the labor market, in order to ensure that low-skilled workers can earn a wage high enough to secure them with access to basic goods and services. (type of price floor)
Any kind of arrangement where the buyers and sellers of a particular good, service or resource are linked together to carry out an exchange
where goods and services are sold
where factors of production are sold
Factor market / resource market
The total amount of real GDP that consumers, firms, the government and foreigners want to buy at each possible price level, over a time period, ceteris paribus.
A scheme in which a government authority (of a single country or group of countries) sets a limit or 'cap' on the amount of pollutants that can be legally emitted by a firm, set by an amount of pollution permits distributed to firms; firms that want to pollute more than their permits allow can buy more permits in a market, while firms that want to pollute less can sell their excess permits.
cap and trade scheme
A tax per unit of carbon emissions of fossil fuels, considered by many countries as a policy to deal with the problem of climate change
A model showing the flow of factors of production from households to firms and the flow of goods and services from firms to households, as well as money flows consisting of consumer' income arising form the sale of their resources and firm's revenue arising from the sale of their products. It illustrates the equivalence of expenditure flows, value of output flows, and income flows.
circular flow of income model
technology that is not polluting, associated with environmental sustainability; includes solar power, wind power, hydropower, recycling and many more
Resources that are not owned by anyone, do not have a price, and are available for anyone to use without payment (for example, lakes, rivers, fish in the open seas); their depletion or degradation leads to environmental unsustainability.
common access resources
The price determined in a market when quantity demanded is equal to quantity supplied, and there is no tendency for the price to change; it is the price that prevails when there is market equilibrium.
A good that demand for which varies negatively with income; this means that as income increases, the demand for the good decreases.
A good the demand for which varies positively with income; this means that as income increases, demand for the good increases.