1.1 : The Economic Problem. Flashcards
In mocks, Revise.
Definition : What is a Free Good?
Goods which have zero cost to obtain. E.G. Air.
Definition : What is a Economic Good?
Goods which have a cost to obtain. E.G. House.
What is the Economic Problem?
When wants are unlimited, but needs are limited.
Definition : What is Scarcity?
The excess of wants over what resources are available to use.
Definition : What is a Normative Statement?
Opinion based.
Definition : What is a Positive Statement?
Factual.
What are the three Economic Agents?
Firms, Households, Government.
What is the role of the Government?
Big employers, Charge/Spend taxes.
What is the role of the Households?
Consume goods and services.
What is the role of the Firms?
Provide goods and services.
What are the four Factors of production?
Land, Labor, Capital and Enterprise.
What is Land?
Limited, Raw Materials and the sea.
What is Labor?
Limited in workers and skill, Can increase through training.
What is Capital?
Man made goods to provide goods and services, increased by investment.
What is Enterprise?
Land, Labor and Capital combined to create goods and services.
What’s the reward for Land?
Rent.
What’s the reward for Labor?
Wages.
What’s the reward for Capital?
Interest.
What’s the reward for Enterprise?
Profit.
What happens when you make a choice?
You get a Trade off.
What is a Trade-Off?
Choosing something and having to give up something for that to happen. E.G. Housing to either buy or rent.
What is Rationaility?
Assumes that all induvial make decisions that provide them with the highest amount of personal utility. E.G. Going to poundland in a rescission is, but going to Waitrose would not be.
What is the objective for Households?
Maximize Utility.
What is the objective for Firms?
Maximize Profit.
What is the objective for Government?
Maximize Welfare.
