1 The economic problem Flashcards
Economics
The study of how scarce/limited resources are used in the world
Economic goods
Gods that are scarce,i.e. there is not an unlimited supply of these goods
Scarcity
When there is a limited amount of something
Free goods
Resources that are usually not seen as limited, such as sunlight or air
The economic problem
how to make the best use of limited or scarce resources
Positive statements
factual statements that can be tested
normative statements
Opinion-based statements that can be agreed or disagreed with
Economic agents
Key groups involved in the economic problem, including governments, firms and households
Households
- A user/consumer of goods and services
- households provide workforce fro businessess/firms i.e. labour force
Firms
- producer of goods and services
- purchaser of the goods and services they use in production process
Government
- use taxation and spending to influence micro economy
- often employed to improve society
Rationality
- assumption that each economic agent acts in their own best interest
Household rationality
- aims to maximise their own satisfaction
- thinking about the value of product vs its price
Firms rationality
- aims to maximise their profits
Government rationality
- aims to maximise welfare
Factors of production
- The building blocks needed for a business to operate
- Land, labour, capital and enterprise
Land
- all the inputs that come from nature and are used in te production process
- Reward = rent
Reward for factors of production
- What needs to be returned by a business for using each of the factors of production
Labour
- the efforts of people who work within a business including mental and physical effort
- Reward = wages and salaries
Capital
- Man-made items that are needed to be able yo produce goods and services
- Reward = interest
Enterprise
- the ability to take risks and bring together the other factors of production
- Reward = Profit
