1.1.1 the economic problem Flashcards
Scarcity
Lack of sufficient products to fulfill total wants/needs
The basic economic problem
How to allocate scarce resources to satisfy unlimited needs and wants
Needs
Essential to survive (necessities, basic requirement)
Wants
Desires (can survive without)
What makes something scarce
- Limited in supply
- Alternative uses
- Desirable
Opportunity cost
The cost of the next opportunity foregone
Production possibility curves (PPC)
Maximum combination of goods and services which can be produced in an economy with existing resources/technology
Outward shift of PPC is caused by…
Economic growth
- New tech/resources
- Improved efficiency
- Improved education/training/labour
- Investments
Inward shift of PPC is caused by…
- Natural disasters (detrimental changes)
- Destroyed farmland, factories, infrastructure
- Migration of workers
Main economic agents
- Individuals/households
- Firms/businesses (private sector)
- Government (public sector)
The basic economic questions
- What to produce?
- How to produce it?
- For whom to produce it?
Goods
Physical items
Services
Non-physical items
Capital goods
- purchased by firms
- used to produce other goods (factory machinery, tools, equipment)
Consumer goods
- Purchased by households (food/confectionary, cars, furniture)
