1.1 THE ECONOMIC PROBLEM Flashcards
What is scarcity?
scarcity means there are insufficient resources to meet wants as we are unable to produce an unlimited supply of products
What is an economic good?
- most products are economic goods/ scarce goods which means that limited resources have been used to make them and they will have na opportunity cost
What is opportunity cost?
- the next best alternative given up when making an economic decision (to an economist the opportunity cost is the true measure of cost of an economic decision)
What is a free good and give an example?
- a free good is a good that has no opportunity cost, for example sunlight
- the price of these goods do not have to be 0 (they do not use scarce resources so they are free)
What are 4 factors of production?
- Capital
- Land
- Labour
- Enterprise
What is Capital?
Capital - man made goods used to produce other goods and services (the capital first had to be produced to be used in the production process), e.g a drill
- Interest is the reward for capital (Factor Payment)
What is Enterprise?
Enterprise - the risk takers who organise the other economic factors of production to facilitate production (also carry financial risk)
- Profit is the reward for risk taking (Factor Payment)
What is Land?
Land - all natural resources used in the production of goods and services, e.g trees, fish
- Rent is the reward for land (Factor Payment)
What is Labour
Labour - all human effort, physical and mental used in production of goods and services, e.g scientists
- Wages are the reward for labour (Factor Payment)
What do we assume all economic agents act as and to maximise what?
- WE ASSUME ALL ECONOMIC AGENTS ACT RATIONALLY (e.g consumers act for the most utility, which is a measure of satisfaction)
- consumers are utility maximisers (from goods and services)
- owners of firms and therefore firms are generally profit maximising
- governments try and maximise social welfare
