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11 Cards in this Set
- Front
- Back
- 3rd side (hint)
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4 Factors of Production |
Land, Labour, Capital, and enterprise |
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Opportunity Cost |
The difference in cost of the next best alternative, everything has a opportunity cost. |
E.g. buying food, the opportunity cost is buying a different cheaper food. |
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Allocatively Efficient |
Occurs when available economic resources are used to produce the combination of goods services that best match people's tastes. |
Supply=Demand |
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Productively Efficient |
Occurs when it is impossible to produce more of one good without producing less of another.For firm, when the average total cost of production is minimised. |
On the PPF |
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Short Run Production |
When at least on of the factors of production is fixed. |
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Long run |
None of the factors of production are fixed |
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Homo Economicus |
Rational Thinker, Utility Maximiser |
Will always get the lowest price for the G/S, and will always get the maximum Utility given the Constraints. |
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Externalities |
a consequence of an industrial or commercial activity which affects other parties without this being reflected in market prices. |
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Negative Externality |
A negative externality is a cost that is suffered by a third party as a result of an economic transaction. |
Production (Supply) Marginal Social Cost is higher than the Marginal Private Cost, the optimum level is MSC=MSB, free markets produce at MPC=MSB. Consumption (Demand) Marginal Social Benefit is higher than the Marginal Private Benefit, optimum level is MSB=MSC, free market consume at MPB=MSC. |
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Positive Externality |
A positive externality is a benefit that is enjoyed by a third-party as a result of an economic transaction. |
Production (Supply) Marginal Social cost is less than the Marginal Private Cost, the optimum level is MSC=MSB, free markets produce at MPC=MSB. Consumption (Demand) Marginal Social benefit is less than Marginal Private Benefit, optimum level is MSB=MSC, free markets consume at MPB=MSC |
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Market Failure |
Market failure is a situation in which the allocation of goods and services is not efficient. |
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