Key Terms

Wants - Desires for consumption of goods and services

Needs - What you need to survive

Choice - Alternatives – in economics this means alternative uses of scarce resources

Scarce resources - These are limited in supply therefore choices need to be made regarding their use

The economic problem - Resources have to be allocated between competing uses as wants are infinite and resources are scarce

Opportunity cost - The cost of the next best alternative

Production possibility frontier / curve - A curve showing the maximum potential level of output of one good given a level of output of all other goods in the economy

Factors of production - The inputs into the production process

Land - All natural resources

Labour Workforce Capital - The stock of man-made resources used in the production of goods and services

Enterprise - Individuals who seek out profitable opportunities and exploit them

Fixed capital - Economic resources such as factories and hospitals which transform working capital into goods and services

Working capital - Resources which are in the production system waiting to be transformed into goods and services

Human capital - The productive potential of an individual or group of workers

Non renewable resources - Resources that when exploited can not be replaced e.g. oil

Renewable resources - Resources which can continue to be exploited as they can renew themselves e.g. Forests

Normative statements - These contain a VALUE judgement – what should / ought to occur, they are based on opinion

Positive statements - These are based on facts

Consumer goods - These are goods that meet consumers needs and wants

Capital goods - These are used to produce consumer goods

Markets - These are where buyers and sellers meet to exchange goods and services

Free market - Here goods are allocated through the market system (by supply and demand) there is decentralised decision making

Planned / command economy - Government makes all decisions based on resource allocation

Price rationing - The way prices allocate and ration scarce resources in the market mechanism through price

Price signalling / transmission - Prices signal to those in the market about demand and supply allowing buyers and sellers to make decisions

Price incentives - Price acts as an incentive to buyers / sellers, low prices encourage demand and high prices discourage demand