1.1.3 - The economic problem Flashcards
What are the factors of production?
. Land
. Labour
. Capital
. Enterprise for Entrepreneurs
Explain Land (factor of production)
All natural resources. Its not only land. Includes natural resources in the atmosphere, below the earth and in the sea
Explain labour (factor of production)
. Work force of an economy e.g. doctors, teachers
. Value of a worker is called human capital
. Education and training increases value of human capital
Explain Capital (factor of production)
Manufactured stock of tools, machines, factories, offices, roads and other resources which are used in production of goods and services
Explain Enterprise (factor of production)
Seeking out profitable opportunities for production and taking risks to exploit these
Define sustainable resource
Can be exploited economically and will not dimish or run out
e.g. forest
Define working capital
stocks of raw material, semi manufactured and finished good which are WAITING TO BE SOLD
Define fixed capital
Stocks of factories, offices, plants and machinery. It is used to transforms working capital into finished products
Define Scarcity
world’s resources are finite: limited amount of land, water, oil and food
Define free goods
Resources that aren’t scarce.
They have NOT go an opportunity cost
Explain basic economic problem
Resources are scarce but wants infinite
Define opportunity cost
The benefit lost in the next best alternative. Free goods have no opportunity cost
Two types of goods
Free goods
Economic goods
Define economic goods
Resources which are scarce. They have an opportunity cost
Define needs
minimum necessary for a person to survive
e.g. water, food, clothing
Define wants
desires for the consumption of non essential goods and services
e.g. being loved, holidays, more friendship
infinite
Define economics
It’s the allocation of resources - the choices that are made by economic agents
Define economy
A system which attempts to solve the basic economic problem
Define non - renewable resources
Land resources that can’t be replaced
e.g. coal, petrol, natural gas
Define renewable resources
Land resources that can be replenished. They can be exploited over and over again.
e.g. fish stocks or forests
Define sustainable resources
A renewable resource that is being economically exploited in such a way that it will not run out.
Define human capital
.value of the productive potential of an individual or group of workers; its made up of the skills, talents, education and training of an individual or group.
.Increasing training and education increases value of human capital
Two types of capital
Fixed capital
Working capital
Define entrepreneurs
Individuals who :
. ORGANISE PRODUCTION - organise land, labour and capital in the production of goods and services
. TAKE RISKS - using money they buy factors of production to produce goods and services in hope of making profit
Explain the rewards to the factors of production
. Owners of land may receive rental income or lease payments
. Entrepreneurs earn profit from their activities, through risking financial capital and organising the factors of production to produce goods and services
. Individuals find employment as workers and their are paid wages
. Owners of capital such as a machinery, factories and hospitals can earn a variety of types of incomes from renting or leasing theses physical assets. They can receive rent or lease income
