Chapter 1
Fundamental economic problem is scarce resources but unlimited wants, sometimes
called the basic economic problem.
Resources are inputs available for the production of goods and services.
Wants are the goods and services that people may like to have but are not always realized.
Needs are things that are necessary for survival, such as food.
Scarcity is a situation in which wants and needs are greater than the resources available.
Choice is when resources are scarce so individuals, firms, and governments have to
consider alternatives.
Opportunity cost is the cost expressed in terms of the next best alternative that is forgone
when a choice is made.
Chapter 2
Microeconomics is the study of individual markets.
Macroeconomics is the study of an economy or a group of economies.
Models are a simplified view of reality used to explain economic problems and issues.
Positive statement is a statement that is based on facts or actual evidence.
Normative statement is a statement that is based on the economists' opinion or value
judgments and which cannot be proven.
Ceteris paribus means other things equal, used by economists to model the effects of one
change at a time.
Short run is time period when the firm can change at least one, but not all factor inputs.
Long run is time period when all factors of production are variable, but with a constant,
such as the state of technology.
Very long run is time period when all key inputs into production are variable. Key inputs
can include technology, government regulations and social concerns.
Chapter 3
Factors of production are resources or inputs available in an economy that are used in the
production of goods and services.
Land is a factor of production; natural resources in an economy.
Labour is a factor of production; human resources available in an economy.
Capital is a factor of production; a physical resource made by humans that aids the
production of goods and services.
Enterprise as a factor of production involves organizing production and taking risks.
Entrepreneur is an individual who seeks out new business opportunities and is willing to
take risks.
Physical capital is capital.
Economic growth in the short run is an increase in a country's output and in the long run is
an increase in a country's productive potential.
Human capital is the value of labor to the productive potential of an economy.
Specialization is the process by which individuals, firms, and economies concentrate on
producing those goods and services where they have an advantage over others.
Division of labor is where a manufacturing process is split into a sequence of individual
tasks.
Chapter 4
Economic system is the way in which production is organized and choices are made in an
economy.
Market economy is an economic system where most decisions are taken through the
market mechanism.
Planned economy, also known as command economy or centrally planned economy, is an
economic system where resources are state owned and allocated by a central body.
Mixed economy is an economic system where both market forces and government are
involved in resource allocation decisions.
Market mechanism, also known as price mechanism, is when resource allocation decisions
are taken by individual producers and consumers with no government intervention.
Private sector is that part of an economy under private ownership.
Public sector is that part of an economy under government ownership.
Privatization is where there is a change in ownership from the public to the private sector.
Emerging economy is one that is making quick progress towards becoming a high-income
economy.
Asian Tiger economies are export-led, high growth economies in Asia.
Chapter 5
PPC is a simple representation of the maximum level of output that an economy can
achieve, given its current resources and state of technology.
Trade-off is what is involved in deciding whether to give up one good for another good.
Productive capacity is the maximum output that can be produced when all resources are
used fully.
Chapter 6
Excludability is where it is possible to stop someone from consuming a good or service.
Rivalry is where consumption by one person of a good or service reduces the availability
of the good or service for others.
Non-rival is where consumption by one person does not reduce consumption by someone
else.
Non-excludable is a situation where it is not possible to stop anyone else from using a
good.
Private goods are goods that are consumed by one person and not available to anyone
else.
Free goods are goods that are not scarce and have zero opportunity cost.
Public good is a good that is non-excludable and non-rival, also known as pure public
goods.
Quasi-public good is good that has some but not the full characteristics of a public good.
Free rider is someone who does not pay to use a public good.