The Economic Problem
The three core economic questions
1. What do we produce?
2. How do we produce it?
3. Who do we produce it for?
Goods used for the production of more goods
Capital goods
A curve sloping downward from left to right
(Normal) Demand Curve
An unintended cost which occurs as the result of an economic transaction.
Negative Externality
The returns generated from Labour as a factor of production
Wages
The value of the next best alternative.
Opportunity cost.
Maximum output from minimum inputs
Technical efficiency
What do the following have in common?
•a fall in consumer's real income;
•the product going out of fashion or season;
•a decrease in the price of a substitute;
•an increase in the price of a complimentary good.
Factors decreasing demand
Goods underprovided by the market but are beneficial for society
Merit Goods
Treating all factors of production as a variable cost instead of a fixed cost is a function of thinking about things in the...
long-run
Scarcity means we need to be careful about our
choices.
In a Production Possibility Diagram, any point falling inside of the PPC is...
inefficient
Higher Quantity Supplied =
Higher Price
A form of government intervention in which the amount of a good which producers can supply is limited.
Quota
Beyond a certain point, increasing one input while keeping others constant will lead to progressively smaller gains in output
Law of Diminishing Returns
Goods that are openly available to satisfy wants/needs without the use of resources and therefore no opportunity cost.
Free goods.
In a Production Possibility Diagram, any point falling along the PPC is...
Efficient (accept other relevant responses)
The % change in the quantity demanded of good X =
the % change in the price of good XPrice Elasticity of Demand
A form of market failure where one firm dominates the market.
Monopoly
The cost of producing each additional unit.
Marginal Cost
We have finite resources, but infinite wants & needs.
The Economic Problem
(accept Scarcity)
In a Production Possibility Diagram, any point falling outside of the PPC is...
impossible
Three factors which influence the Price Elasticity of Demand
Any of: Substitutes, Addictiveness/Habits, Fashion, Relationship to Average Income, Frequency of Purchase, Complementariness
Three features of a public good.
- Non-Excludable
- Non-Rival
- Free-Rider Problem
The advantage that a large firm would have over a smaller competitor due reductions in the average cost per unit.
Internal Economies of Scale