1.1.3 The economic problem Flashcards
Barter
The practice of exchanging one good or service for another without using money
Basic economic problem
There are infinite wants but finite factor resources with which to satisfy them
Capital goods
Goods which are used by producers to produce other goods and services to sell to consumers
e.g. factories, machinery, equiptment
Constraints
Limits to what we can afford to consume
Economic agent
A participant in an economic system -consumer, business or government
Entrepreneur
An individual who seeks to supply products to a market for a rate of return (i.e. a profit)
Factor incomes
The rewards to factors of production
capital- interest
enterprise- profit
land- rent
labour- wages
Factors of production
The inputs available to supply goods and services
Capital- goods used in the supply of other products e.g. technology, factories a d specialised machinery
Enterprise- entrepreneurs organise factors of production and take risks
Land- natural resources available for production
Labour- the human input into the production process
Non-renewable/Finite resources
There are only a limited number of workers, wmachines, acres of land, reserves of oil and other natural resources on the earth.
By producing more for an increasing population, we may destroy the natural resources of the planet
Free goods
Free goods
Goods which don’t use up any factor inputs when supplied and have no opportunity cost
i.e. sunshine, rain, air
Renewable/Infinite resources
resources which are replaceable if the rate of extraction of the resources is less than the rate the resource renews
e.g. solar energy, oxygen, biomass, fish stocks, forestry
opportunity cost
The cost of any choice in terms of the next best alternative foregone
Rationing
A way of allocating scarce goods and services when market demand exceeds available supply
Scarcity
a limit
