Definitions that you should LEARN for Unit 1

(you should be able to reproduce these definitions EXACTLY under exam conditions)

WHY do I need to learn them off by heart?

§  It is usually a good idea to define any terms used in the question at the beginning of your answer. If your definition isn’t accurate you won’t get any marks for it.

§  If you know PRECISELY what the terms in a question mean, you are far more likely to be able to give a top quality answer.

HOW can I learn these definitions?

Everybody has different ways of learning but here is a suggestion that is in three stages:

1.      Cover up the terms side of the page and see if you can remember the terms that go with each definition. You can check your answers as you go by uncovering the terms one by one. Keep doing this until you can do it without any difficulty.

2.     Cover up the definitions side of the page and see if you can recite the definitions accurately. Keep repeating this until you can do it without any difficulty.

3.     Ask someone to give you terms randomly and check whether you can give the definitions.

(you may wish to make the above easier by starting off with only 10, or less, terms at a time)

Term

Definition

Scarce resources

Resources that are limited or finite

Opportunity Cost

Cost expressed in terms of the next best alternative that is foregone

Basic economic problem

Resources are scarce but wants are unlimited

Production possibility frontier

A diagram that shows all the combinations of two goods that can be produced when all factors of production are being used.

Free good

A good that has no opportunity cost

Normative economic statement

An economic statement that is based on a value judgement.

Positive economic statement

An economic statement that can be tested in order to determine whether or not it is true.

Land

Natural resources that are used for production

Labour

Human resources that are used for production

Capital

Manufactured goods that are used for production

Enterprise (Entrepreneurship)

Risk taking in the production process

Demand curve

A demand curve shows how much people are willing and able to buy at each price.

Supply curve

A supply curve shows how much suppliers are willing and able to supply at each price.

Complementary goods

Goods or services that are frequently consumed together

Substitute goods

Goods or services that can be used instead of each other

Price elasticity of demand

A measure of the responsiveness of demand to a change in price

Formula for price elasticity of demand

% change in quantity demanded

         % change in price

Price elasticity of supply

A measure of the responsiveness of supply to a change in price

Formula for price elasticity of supply

% change in quantity supplied

        % change in price

Income elasticity of demand

A measure of the responsiveness of demand…