1.2 Nature and Purpose of Economic Activity Flashcards
What is a need?
Needs are something humans need to survive, for example, water, shelter, food.
What is a want?
Wants are something that improve a humans standard of living and economic welfare i.e. a new car.
What is the central issue of Economics/the economic problem?
Unlimited wants/needs and limited resources.
What is scarcity?
Scarcity results from people having unlimited wants and needs, but the resources to meet these needs are limited.
What is economic welfare?
How satisfied your wants and needs are.
What are the 3 basic questions the economic problem tries to answer?
What to produce?
How to produce?
Who to produce for?
How do producers know what to produce?
Economic incentives will provide economic agents with the information required to tell them what goods and services to produce
How do producers decide how to produce their products?
Firms will combine the factors of production (land, labour, capital and enterprise) in order to produce a good or a service
How does a producer decide who to produce for?
In a free market economy we produce according to demand and supply
If there is demand for a product a firm may wish to supply it for a profit
What is the fundamental purpose of economic activity?
The satisfaction of wants and needs.
