1.1 The Economic Problem Flashcards
What are Economic goods?
Goods which benefit society, have the problem of scarcity and have an opportunity cost. Since economic goods are scarce, they have some value, so consumers will pay for them, and they can be traded.
What are Free goods?
Goods which have no opportunity cost, because there is no scarcity of the good. For example, air and water are free goods. These goods are not traded because they are freely available
What is the Basic Economic problem?
Scarcity - Unlimited wants but finite resources
What are positive statements?
Objective statements. They can be tested with factual evidence, and can consequently be rejected or accepted.
What are normative statements?
Statements which are based on value judgements. These are subjective and based on opinion rather than factual evidence.
What are the 4 factors of production?
Capital, Enterprise, Land and Labor (CELL)
What is Capital? What is the reward/incentive?
All man made good which can used in production of other goods and services such as factories, machines, computers and tools. The reward is the interest from the investment.
What is Enterprise? What is the reward/incentive?
The human ability to bring together the other three Factors of Production to create goods and services, with the entrepreneur being the person who takes risks and innovates. The reward is profit which is the incentive to take risks.
What is Labor? What is the reward?
Human capital, which is the workforce of the economy. The reward is wages for the work.
What is Land? What is the reward?
Natural resources such as oil, coal, wheat, water. It can also be the physical space for fixed capital. The reward is rent.
What is the environment?
A scarce resource
What are renewable resources?
Resources that can be replenished, they are sustainable.
What are non-renewable resources?
Resources which cannot be replenished and are therefore not sustainable
What does sustainable mean?
Meets the needs of the present, without compromising the needs of the future - does not deplete the stock of capital over time (including environmental capital).
What are the economic agents?
Government, Firms, Households
