1 The basic economic problem Flashcards
Economics
A social science that deals with the consumption, production, allocation of resources and distribution of goods and services.
The basic economic problem
Scarcity is a basic economic problem of any society. Every society has limited (finite) resources and unlimited wants.
Scarcity
The problem of unlimited wants and limited resources. Scarcity requires people to make choices and decisions about how to allocate resources efficiently to satisfy basic needs and as many wants as possible.
Needs
Goods and services that meet a human’s basic requirements for life.
Wants
Goods and services that humans desire beyond their basic needs.
GDP (gross domestic product)
The value of the goods and services produced within a country’s borders in one calendar year.
Economic agents
Are households(private individuals in society), firms that operate in the private sector of an economy and the government(the public sector of an economy).
Three basic economic questions
What is it?
How to produce it?
Whom from?
Good
A physical product that you own and get utility from it
Service
Something you pay for but don’t own/keep
Free good
Good with no opportunity cost
e.g. water, air
Economic good
A good with some benefit to society and an opportunity cost. It can include both private and public goods.
Private good
Rivalry and excludable (limited)
e.g. coca-cola
Public good
Non-rivalry and non-excludable (Not free)
e.g. street lights
Factors of production
Capital: The more capital, the more things you can afford.
Entrepreneurs: The better ideas, the higher skilled the better moderation.
Land: The natural resource required.
Labour: the people to work required to perform tasks.
(CELL)
Scarce resources
Land, labour, capital and enterprise needed to produce goods and services.
Geographical mobility
Refers to the extent to which labour is willing and able to move to different locations for employment purposes.
Occupational mobility
refers to the ease with which a person is able to change between jobs.
Government policies
can affect the cost of production (tax and subsidies)
How does new technologies affect firms?
Allow firms to produce more output.
how does the net migration of labour affect firms
will affect the quantity of labour.
rent
The income a land or capital owner receives from leasing a piece of land.
Wages
The income a labourer receives from the skills he or she sells to firms.
Interest
The income received when money saving and the cost of borrowing.
Profits
The income an owner of an enterprise earns from selling goods and services; the difference between revenue earned and costs of production.
Factor mobility
The ability to transfer factors of production like land, labour and capital from one production task to another.
Labour force
People that are currently working and the people that are searching for work.
Productivity
When labour is able to produce more goods and services than before with the same amount of resources or cost
Opportunity cost
The cost of the next best alternative is given up.
Economic resources
Factors of production
Production possibility curve
A diagram that shows the opportunity cost of two products.
Consumer choices
When a consumer buys something, they sacrifice the ability to buy the next best alternative.
Employee choices
Households make decisions as consumers on things like what goods and services to purchase.
Producer choices
Some typical choices are how much to produce, what to produce, and for whom to produce it.
Government choices
Since almost every country in the world has a mixed economic system, the government and businesses have to make choices about what to produce, how to produce it and for whom to produce it.
