1.1 The Economic Problem Flashcards
Explain what an economic good is
A product or a service which costs a price.
E.G. food, electricity, holidays
Explain what a free good is
A product or service which is accessible by everyone, has no cost and is abundant in its amount.
E.G. sunlight, air. NOT WATER
Explain the economic problem
The main issue of economics is scarcity. This is where people having unlimited wants, however resources to fulfill these wants are limited. This means a choice must be made on how to allocate these resources.
Explain what a normative statement is.
A statement based upon opinions / judgements as opposed to facts.
E.G. the goverment should / ought to do this
Explain what a positive statement is.
A statement based purely and solely upon facts.
E.G. The cost of living is / will increasing
Explain the role of the government as an economic agent
- Responsible for providing goods and
services and regulating businesses. - Responsible for regulating businesses
- Responsible for stability (fiscal/monetary
policies)
Explain the role of firms as an economic agent
- To sell goods and services for a profit
- To provide jobs
- Business Objectives (profit, growth, sales, CSR, NonProfit)
Explain the role of households as an economic agent
- To make choices how to spend income
- To consume goods and services for maximum utility
- To provide labour
Name the four factors of Production
Capital
Entrepreneurship
Land
Labour
Describe Capital & The reward gained
Goods which can be used to make other goods ie: buildings and machinery
The reward gained is interest from the investment
Describe Entrepreneurship & The Reward Gained
Someone who takes risks, innovates and decides how to use the resources.
The reward is profit earned from sales.
Describe Land & The Reward Gained.
Natural resources such as oil, coal, water.
The reward is rent earned from selling the land where these goods are founed
Describe Labour & The Reward Gained
The human workforce.
The reward is wages earned through working.
EVALUATE: The problem of scarcity and the requirement to make choices.
Since non-renewable resources are unsustainable (scarce), choices have to be made for how to most efficiently use said resources.
Methods such as recycling or using renewable substitutes are the most efficient way to combat this problem.
However, we may begin to use up too many renewable resources than are being produced so this may become unsustainable also.
EVALUATE: Rationality as a way of understanding the behaviour of economic agents.
In economics, decisions are made using intuition and result in the best possible outcome for the economic agent.
When irrational decisions are made, usually by the consumer, it can lead to slow down of growth or a decrease in the circular flow of income through savings.
When Firms make rational decisions, it can take a long time to come to an intuitive decision as many factors have to be weighed which can lead to time lags.
EVALUATE: The Different Objectives of the Economic Agents in an Economy.
When acting rationally, it is assumed that all economic agents will only act in their own interests.
The households (consumers) aim to generate the greatest utility possible from a choice.
Firms aim to maximise profits. This is achieved through economies of scale.
Governments act on behalf of consumers and intervene in different sections of the economy. The aim of governments is to:
Achieve economic stability,
Maximise human welfare,
Increase economic development,
Reduce unemployment,
Keep inflation to a minimum (not zero).
