Theme 1 Core Definitions List
Important elements of the definition, including the definition itself, are in bold. Notes on the definition are in
italics.
1.Nature of Economics
Ceteris Paribus: The assumption that whilst the effects of one variable are being considered, all
other variables are held constant. E.g. when looking at how price affects demand, we assume all
other variables that may affect demand are held constant, only price changes in other words.
Latin translation “all other things being equal” is a good addition for a 2-mark question.
Normative Statements: A statement which cannot be supported or refuted because it is a value
judgement.
Positive Statements: A statement that can be supported or refuted by evidence. Memory tip:
we can be positively sure that a positive statement is true or false!
Scarcity: The property of resources being limited in their use. Combined with our infinite wants,
this is the basis for the basic economic problem.
Opportunity Cost: The benefit of the next best alternative sacrificed, when making a choice
between different uses of scarce resources.
Renewable Resources: Resources that can be exploited repeatedly as they can renew
themselves. Although this only applies if they are used sustainably. Not critical to the definition but
good to know.
Non-renewable Resources: Resources that cannot be replaced once exploited, and thus
cannot be repeatedly exploited.
Production Possibility Frontier: A curve which shows the maximum level of output of one good
or service, with a given level of output of another good or service, assuming a fixed level of
starting resources. In other words, the curve shows you the different possible output
combinations of two things you can produce.
Capital Goods: Goods used in the production of other goods.
Consumer Goods: Goods and services used to satisfy needs and wants through
consumption.
Specialisation: A system of organisation where economic agents are not self-sufficient, but
concentrate on producing specific goods and services and trading the surplus production for
goods and services they do not produce.
Division of Labour: Specialisation by workers, who perform different tasks at different stages of
the production process.
Free Market: An economic system where resources are allocated through the market
mechanism
Command Economy: An economic system where a government or central authority allocates
resources in society
Important elements of the definition, including the definition itself, are in bold. Notes on the definition are in
italics.
1.Nature of Economics
Ceteris Paribus: The assumption that whilst the effects of one variable are being considered, all
other variables are held constant. E.g. when looking at how price affects demand, we assume all
other variables that may affect demand are held constant, only price changes in other words.
Latin translation “all other things being equal” is a good addition for a 2-mark question.
Normative Statements: A statement which cannot be supported or refuted because it is a value
judgement.
Positive Statements: A statement that can be supported or refuted by evidence. Memory tip:
we can be positively sure that a positive statement is true or false!
Scarcity: The property of resources being limited in their use. Combined with our infinite wants,
this is the basis for the basic economic problem.
Opportunity Cost: The benefit of the next best alternative sacrificed, when making a choice
between different uses of scarce resources.
Renewable Resources: Resources that can be exploited repeatedly as they can renew
themselves. Although this only applies if they are used sustainably. Not critical to the definition but
good to know.
Non-renewable Resources: Resources that cannot be replaced once exploited, and thus
cannot be repeatedly exploited.
Production Possibility Frontier: A curve which shows the maximum level of output of one good
or service, with a given level of output of another good or service, assuming a fixed level of
starting resources. In other words, the curve shows you the different possible output
combinations of two things you can produce.
Capital Goods: Goods used in the production of other goods.
Consumer Goods: Goods and services used to satisfy needs and wants through
consumption.
Specialisation: A system of organisation where economic agents are not self-sufficient, but
concentrate on producing specific goods and services and trading the surplus production for
goods and services they do not produce.
Division of Labour: Specialisation by workers, who perform different tasks at different stages of
the production process.
Free Market: An economic system where resources are allocated through the market
mechanism
Command Economy: An economic system where a government or central authority allocates
resources in society
