3 The economic problem Flashcards
Scarce resources
Resources that are limited in supply so that choices have to be made about their use.
Economic goods
Good that are scarce because their use has an opportunity cost.
Free goods
Goods that are unlimited in supply and which therefore have no opportunity cost
Wants
Desires for the consumption of goods and services.
Needs
The minimum that is necessary for a person to survive as a human being.
Basic economic problem
There are infinite wants but finite factor resources with which to satisfy them.
Opportunity cost
The benefits forgone of the next best alternative.
What three parts do economists distinguish to the economic problem?
WHAT is to be produced?
HOW is production organised?
For WHOM is production to take place?
Factors of production
Capital
Enterprise
Land
Labour
Land
Natural resources available for production.
Labour
Physical and mental effort by humans.
Capital
As a factor of production is the stock of manufactured resources used in production of goods and services.
Enterprise
As a factor of production is the seeking out of profitable opportunities for production and taking risks in attempting to exploit these.
Renewable resources
Renewable resources (in theory) are replaceable if the rate of extraction of the resource is less than the natural rate at which the resource renews. Examples of renewable resources are solar energy, oxygen, biomass, fish stocks and forestry.
Non-renewable resources
Non-renewable resources are resources which are finite and cannot be replaced. Minerals, fossil fuels and so on are all non-renewable resources.
How should opportunity cost be expressed?
Expressed in terms of other alternatives that might have been forgone.
Barter
The practice of exchanging one good or service for another without using money.
Entrepreneur
An entrepreneur is an individual who seeks to supply products to a market for a rate of return (i.e. a profit). Entrepreneurs will often invest their own financial capital
Rationing
Rationing is a way of allocating scarce goods and services when market demand exceeds available supply. There are many ways of rationing including by price, by consumer income, by assessment of need, by education level and by age, gender, nationality.
