3.1 Introduction to economics Flashcards
What is economics?
the study of how society chooses to allocate its scarce land, labour and capital resources to the production of goods and services to satisfy the population’s needs and unlimited wants.
What is a need?
something essential for a persons survival and are limited.
What is a want?
a desire a person has that is not essential for survival and are unlimited.
What is an economic resource (or factor of production)?
inputs that are used in the production of goods and services, and include land resources, labour resources and capital resources.
What are land resources?
Any natural resource provided by nature used in the process of production.
What are labour resources?
The mental and physical capacity of workers to produce goods and services.
What are capital resources?
Human-made tools, machinery and equipment used in the production of goods and services.
What are the three main ideas that form the foundation of economics?
Scarcity, choice, opportunity cost.
What is scarcity?
the problem that every society faces where we as humans have needs and unlimited wants, yet only limited productive land, labour and capital resources to satisfy these needs and wants.
What is a choice?
an economic decision made between two competing alternatives.
What is an opportunity cost?
the loss of the value of the next best alternative forgone whenever an economic decision is made.
eg. If a 10 student has the choice of either studying for an exam or going out with friends, the opportunity cost of going out with friends is the time and effort that could have been spent studying for the exam. Alternatively, the opportunity cost of studying for the exam is the time and enjoyment that could have been spent with friends.
What is the purpose of an opportunity cost?
helps to explain the trade-offs that people, businesses and governments face when making decisions about how to allocate their resources.
What is the production possibilities model?
used to illustrate the trade-offs that exist when an economy decides what goods to produce. It demonstrates scarcity, choice and opportunity cost. It makes two major assumptions: that an economy can only produce two different goods or services and that all scarce resources are being fully utilised (or employed)
What is efficiency?
efficiency refers to the optimal use of resources in the production of goods and services, with no wastage. This means that a firm or economy is producing the maximum possible output with its given scarce resources.
