1.1 - economic problem Flashcards
Introduction
Economic goods
Goods are scarce and demand a price.
Have a monetary value.
Seen as scarce
E.G. diamond ring
Free goods
Goods that are not seen as scarce, no opportunity cost / rivalry.
E.G. run in the countryside.
Scarcity
Choices have to be made, cannot all satisfy our needs.
Have to prioritise their consumption.
Problem of Scarcity
Not enough resources to please unlimited wants
Forced to make a choice on what bought / how raw materials are used
Needs
Necessary for life, something you require for life.
E.G. Food/water
Wants
Something an individual may like to consume but isn’t necessary.
E.G. Phones
The basic economic problem
Resources are limited so we have to make choices in everyday life
Normative statements
Opinions / value judgments- are subjective.
E.G. the main problem affecting the gov is pollution.
Positive statements
Facts which can be tested referring to evidence.
Example: High fuel prices means less people will drive to work.
Role of governments
Maintaining competition
Providing public goods and services
Objectives of governments
Maintaining full employment
Ensuring price stability
Role of firms
Take money for goods and services while providing an income for skilled workers.
Objectives of firms
Profit maximisation
Role of households
Fulfil wants and needs
Objective of households
Buy products
Definition of land (FoP)
Natural resources available for production
Examples of land
Farm / crops
Reward for land
Rent
Definition of labour (FoP)
Human input into the production process
Examples of labour
Workforce
Reward for labour
Wages/salary
Definition of capital (FoP)
Goods used in the supply of other products
Examples of capital goods
Machinery
Reward for capital
Interest
Definition of enterprise (FoP)
Organise factors of production
Examples of enterprise
Management
Reward for enterprise
Profit
Rationality (Neo-Classical)
Assumes that consumers always behave rationally
Rationality (Behavioural)
Argues rationality isn’t always realistic
Bounded by:
Limited time
Too much choice
Incomplete / inaccurate information
Too much information (overwhelming)
Asymmetric information
Lack of self-control
What can influence consumer decisions?
Behavioural
Habitual behaviour (buying particular brands)
Social norms (influenced by others)
Emotion (based off feelings)
Altruism (based on kindness not self-interest)
