A firm's profit is their total revenue minus their total costs.
Goods (physical products you can touch) and Services (intangible offerings like medical check-ups).
The basic economic problem is how to use the available scarce resources to satisfy people's infinite needs and wants as effectively as possible.
Producers are motivated to maximize profit.
Economic goods are scarce and can be traded, while free goods, like air, are not scarce and are available for free.
The public sector and the private sector.
A rational consumer will choose to consume a good at the point where marginal utility equals price.
Bounded self-control refers to the limits individuals have on their ability to control their actions, which can lead them to make decisions that do not maximize their utility.
Producers make decisions on what to produce based on consumer demand, while consumers decide what to buy.
Satisficing is the tendency of individuals to make satisfactory decisions rather than seeking the optimal choice that maximizes utility, often due to bounded rationality.
Traditional economic theories assume that all economic agents have perfect (or symmetric) information and the ability to use it to make rational decisions.
Firms may want to maximise total sales or market share.
Positive statements are objective statements that can be tested by referring to available evidence, such as 'A reduction in income will increase the amount of people shopping in pound shops.'
PPFs show the maximum amount of two goods or services an economy can produce.
Hayek believed that governments should not intervene in resource allocation because they lack the necessary information.
Opportunity cost is the next best alternative that you give up in making a decision.
Economists assume that individuals act rationally, preferring wages over free time for workers and work over money for employers.
Governments may change laws, offer tax breaks, or provide goods and services to influence behavior.
Utility roughly means 'well-being', 'happiness', or 'satisfaction'.
The law of diminishing marginal utility states that for each additional unit of a good consumed, the marginal utility gained decreases.
Normative statements are subjective and contain value judgments, such as 'The use of fossil fuels should be taxed more highly than the use of renewable fuels.' They cannot be tested for truth, only for agreement or disagreement.
The basic problem is how best to allocate scarce resources.
Economists develop theories and create models to explain phenomena, using empirical data, observation, deduction, and statistical tools to test their theories against known facts.
What to produce? How to produce it? Who to produce it for?
Downsides include income inequalities, potential lack of production for non-profitable goods, and the risk of monopolies.
Marginal cost is calculated by finding the difference between the total cost at the new output level and the total cost at one unit less than that.
The four factors of production are Land, Labour, Capital, and Enterprise.
To increase people's economic welfare by creating outputs that satisfy their various needs and wants.
Opportunity cost refers to the value of the next best alternative that is forgone when making a decision about resource allocation.
Behavioral economists challenge traditional economic theory by questioning the assumptions that economic agents are utility maximizers and rational, highlighting the influence of social, psychological, and emotional factors on decision-making.
The voluntary sector, which includes charities and other non-profit-making organizations.
Advantages include efficiency, entrepreneurship, and increased choice for consumers.
Firms want to maximise profit to survive, offer better rewards to owners and staff, or reinvest in the business.
Consumers are traditionally assumed to want to maximise their utility while living within their means.
The 'invisible hand' refers to the self-regulating nature of the free market, where resources are allocated in society's best interests.
Human capital refers to the skills, education, and experience that make some people more productive in the workplace than others.
The price mechanism acts as a signaling device between consumers and producers, efficiently allocating resources based on supply and demand.
It indicates that the mix of goods is productively inefficient.
Point E lies outside the PPF, indicating it isn’t achievable with the current level of resources.
Traditional economists assume that economic agents want to maximize their utility and will act rationally to achieve this.
Enterprise refers to the people (entrepreneurs) who take risks and create things from the other three factors of production.
Land, Labor, Capital, and Entrepreneurship.
Ceteris paribus is a Latin term meaning 'all other things remaining equal,' used by economists to isolate the relationship between two factors while assuming other variables remain constant.
Governments set rules for economic participants and also produce and consume goods and services.
Asymmetric information occurs when one party has more information than another in a transaction, which can prevent rational decision-making and lead to market failure.
The PPF curve shows the maximum possible output and the trade-offs between different goods.
Disadvantages include poor decision-making, restricted choice for consumers, and lack of efficiency and innovation.
The margin refers to the change in a variable caused by an increase of one unit of another variable, such as the marginal cost of producing an additional unit.
Governments try to maximise economic growth, full employment, equilibrium in the balance of payments, and low inflation.
Workers are assumed to want to maximise their income while having as much free time as they need or want.
Marx argued that the free market created a situation where a small ruling class dominated and exploited the larger working class.
Renewable resources can regrow or regenerate, while non-renewable resources will eventually run out if used continuously.
Economics is considered a social science because it studies human behavior in relation to the use of scarce resources, either as individuals or as part of organizations.
A trade-off is when you have to choose between conflicting objectives because you can’t achieve all your objectives at the same time.
Advantages include maximizing welfare, low unemployment, and preventing monopolies.
Marginal utility is the benefit gained from consuming one additional unit of a good.
A PPF shows what’s possible using a particular level of resources, indicating the maximum output combinations of two goods that can be produced.
Normative statements influence decision-making and government policy, as they reflect people's opinions and moral views.
It illustrates the trade-off between producing more houses and fewer vehicles.
Each buyer or seller chooses to exchange something they have for something they’d prefer to have instead.
A free market allocates resources based on supply and demand and the price mechanism.
The public sector is the part of the economy that is controlled by the government.
Labour is the work done by those people who contribute to the production process.
Consumers decide what to buy and how much they are willing to pay, influencing what producers make.
Markets allocate resources to different economic activities.
Different points on a PPF represent various decisions regarding the allocation of scarce resources, illustrating the trade-offs involved in production choices.
Capital goods are used in the production of other goods.
If the total amount of resources increases, the PPF shifts outward, indicating an increase in the total possible output. Conversely, if resources decrease, the PPF shifts inward, showing a reduction in possible output.
Consumers may not act rationally due to limited time for decision-making, lack of available or incorrect information, and difficulties in processing vast amounts of data, leading to 'bounded rationality'.
An inward shift of the PPF indicates negative economic growth, showing that the total possible output has shrunk, often due to a decrease in available resources.
The labour force is the population available to do work, which includes both employed and unemployed individuals.
Market failure occurs when free markets result in undesirable outcomes, such as traffic congestion.
The PPF can shift outward due to increased resources, improved technology, or enhancements in labor efficiency, allowing more output to be produced with the same resources.
Capital includes the equipment, factories, and schools that help to produce goods or services.
Not all points will reflect the production of goods that people want or need.
In a command economy, the government decides how resources should be allocated instead of the market.
