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, Labour, Land (CELL)
What is Capital? What is the reward/incentive?
“Physical: goods which can be used in the production process.
Fixed: Machines; buildings.Working: finished or semi-finished consumer goods. Reward is the intrest from the investment.
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What is Enterprise? What is the reward/incentive?
“Managerial ability. The entrepreneur is someone who takes risks, innovates, and uses the factors of production. Resources are drawn together into the production process.
The reward is profit, an incentive to take risks.”
What is Labour? 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
