Economics: Scarcity and Choice Concepts

The economic problem that resources are insufficient or limited to satisfy unlimited human needs and wants.

What is produced and what is sacrificed

Best possible use of scarce resources to avoid waste

Idea of being fair or just.

Concept referring to satisfaction of economic situation

Sustaining a particular activity/policy

Mostly continous state in economic theory and real-world events

The idea that economic decision makers rely and interact with each other

Typically government intervention, gov involving in market

Land, Labour, Capital, Entrepreneurship

The next best alternative that must be sacrificed/forgone to obtain something else when an economic decision is made.

Any good that isn't scarce or produced with scarce resources, has 0 opportnity cost.

Natural scarce resource or produced with scarce resources. Opportunity cost >0

A model that shows the maximum combination of any two goods which an economy could produce if all of its resources were fully employed and used efficiently. Points on the curve are called production possibilities and the level of technology is fixed.

Increase in quantity of output produced in an economy over a period of time. Increases GDP and is short term.

A multidimensional concept that relates to the increase in standard of living and quality of life (e.g. greater availability of technology). is long term.

Development -> Growth

economic issues that can be studied looking at facts

Economic issues studied with value judgements/opinions

Ceteris paribus and rational economic decision making (individuals assumed to act in best self interest)

Gross Domestic Product, the dollar value of all final goods + services produced within an economy (produced in a country's borders) in a given year

A measure of the responsiveness of the quantity demand for a product to changes in its own price

A change in price of a good/service leads to a proportionally smaller change in the quantity demand of it (0 < PED < 1)

A change in price of a good/service leads to the same change in the quantity demand of it (PED = 1)

Vertical Line

The responsiveness of demand and hence quantity demanded of a product to changes in income

A measure of the responsiveness of the quantity supplied for a product to changes in its own price

an allocation of resources that results in producing the combination and quantity of G&S most preferred by the society. It is achieved when the economy allocates its resources so an equilibrium and pareto optimum is reached and social welfare is maximised

The quantity of a good or service that consumers are willing and able to buy at a certain price during a certain time period, ceteris paribus

As the price of a product increases, the quantity demanded of it will usually decrease, ceteris paribus, vice versa

The quantity of a good or service that producers are willing and able to offer at a certain price during a certain time period, ceteris paribus

As the price of a product increases, the quantity supplied of it will usually increase, ceteris paribus, vice versa

The system by which the forces of demand and supply determine the prices of products

Resource allocation function and rationing function

signals + incentives -> new equilibrium from temporary disequilibrium

Output is received by those who are willing and able to buy them

State of balance between different forces (demand + supply) such that there is no tendency to change

Goods arising directly from the use of natural resources, or the factor of production 'land'

Goods produced from raw materials through manufacturing processes.

A tax levied on the expenditure of products by the government to generate government revenue

Financial assistance given by the government to producers in order to reduce cost of production.

The difference between the price consumers are willing and able to pay for a good or service and the price they actually pay.

The difference between the price producers are willing and able to accept for a good or service and the price they actually receive.

S (substitutes) P (proportion of income) L (luxury or necessity) A (addictive/habit forming) T (time to respond)

P (production lag) S (stocks) S (spare capacity) S (substitutability of FOPs) T (time period)

The setting of minimum or maximum prices by the government so that the prices are unable to adjust to the equilibrium price determined by D&S.

Legal maximum price set below equilibrium price to be effective and prevent producers from selling the product above it (to make goods more affordable to people on low incomes), set by gov

Legal minimum price rest above equlibrium price to be effective and prevent producers from selling products below it (provide income support to farmers or to increase the wages of low-skilled workers), set by gov

How a market economy (free markets) fails to achieve the correct outcomes for individuals and society.