1.1.3 The Economic Problem Flashcards
What is the basic economic problem?
Scarcity of resources. There are finite resources available in relation to the infinite wants and needs that humans have.
What are the key three choices every society has to make.
1) Society must choose what goods and services to produce based on it’s needs.
2) Society must choose how to produce goods and services based on it’s** resources**
3) Society must choose who to produce for based on it’s population and other available markets
What are resources?
Factors of production: Land, Labour, Capital and Enterprise.
What is an opportunity cost?
The value of the next best alternative forgone.
Represents the true cost of a decision in terms of foregone opportunities.
What are the implications of scarcity?
Scarcity necessitates making choices and trade-offs due to limited resources.
There is also an opportunity cost.
Real-World example of the basic economic problem
A government’s decision to allocate funds to healthcare may mean fewer resources available for education.
The opportunity cost is the educational quality and access that could have been improved with those funds.
What effect does a free market have on scarcity and its implications for resource allocation in society?
In a free market, scarcity has a direct influence on prices:
The scarcer a resource, the higher the price for it will be
The less scarce a resource, the lower the price for it will be
Renewable Resources
Renewable resources can be replenished naturally over time.
They include resources like solar energy, wind energy, forests, and fish stocks.
Non-Renewable Resources
Non-renewable resources cannot be replaced naturally within a human timescale.
Examples include fossil fuels (coal, oil, natural gas), minerals (e.g., iron, copper), and nuclear fuel.
Why is the distinction Between Renewable and Non-Renewable Resources important?
Sustainability: Understanding the difference is vital for sustainable resource management.
Economic Implications: Depletion of non-renewable resources can lead to rising prices and economic challenges.
Example: Fossil fuels (non-renewable) are finite resources. As they are depleted, the world is increasingly focusing on renewable energy sources like solar and wind power to combat climate change and ensure long-term energy security.
What are economic agents?
consumers, government, producers
What is the Importance of Opportunity Costs to consumers?
Consumers make choices about spending money and time.
Opportunity cost makes them make infomed decisions. Do they buy a new phone or save for a holiday?
What is the Importance of Opportunity Costs to producers?
Producers allocate resources to maximise profit.
Opportunity cost influences production choices such as choosing which products to manufacture.
What is the Importance of Opportunity Costs to the government?
Governments allocate budgets to programmes and policies.
Opportunity cost informs choices on allocating resources between healthcare, education, defence and more.
example of opportunity cost
If a consumer spends $500 on a new smartphone, the opportunity cost might be the vacation they could have taken with that money. For governments, investing in infrastructure instead of defense might mean an opportunity cost in terms of national security.
understood?
Factors of production
the inputs to the prodcution process: land, labour, capital and enterpise
fixed capital
economic resources such as factories and hospitals, used to transform working capital into goods and services
(working capital are resources in the prodution system waiting to be transformed into goods or services before being sold to the consumer) into goods and services
Land
what is it
the stock of natural factor resources available for production
known as (natural capital)
Labour
what is it
quality and quantity of human input available for production process
Capital
stock of manufactures resources used in the production of goods and services
Enterprise
entreprenuers willingness and ability to take risks and combine the three other factors of production
What is automation
production technique that uses capital machinery and new technology to replace and enhance human labour
What is replacing labour known as?
capital-labour substitution
Nimbiysm
not in my back yard, nobody wants wind turbines in their back garden
Entrepreneurs
individuals who seek out profitable opportunities for production and take risks in exploiting these
Base period
the period (year or month) with which all other values in a series are compared
Index number
an indicator showing relative value of one number to another from a base of 100, often used to present an average of number of statistics
