4.1.1.2 The nature and purpose of economic activity Flashcards
What is the central purpose of economic activity?
The central purpose of economic activity is the production of goods and services to satisfy consumer wants and needs.
What are the key economic decisions that need to be made?
The key economic decisions are:
- What to produce?
- How to produce?
- Who is to benefit from the goods and services produced?
What is the role of resources in economic activity?
Resources (inputs in the form of factors of production) are used to produce outputs (goods and services) that satisfy consumer needs and wants.
What is the decision of ‘what to produce’?
This decision involves determining which goods and services should be produced and in what quantities, considering the problem of opportunity cost.
Who makes the decision of ‘what to produce’?
Both the government and the private sector make this decision, balancing the production of different goods and services based on consumer demand and resource availability.
What is the decision of ‘how to produce’?
This decision involves determining the most efficient method of production, considering factors like cost minimization, profit maximization, and the choice between labor-intensive and capital-intensive production.
What factors are considered in the ‘how to produce’ decision?
Firms consider the cost and productivity of each FOP to decide whether to use labor-intensive or capital-intensive methods.
What is the decision of ‘who will benefit from the goods and services produced’?
This decision involves determining who receives the goods and services, typically based on purchasing power. Those willing and able to pay the price will benefit.
What is opportunity cost, and why is it important in economic decisions?
Opportunity cost is the next best alternative foregone when making a decision. It is important because resources are scarce, and decisions about what to produce involve trade-offs.
What is the difference between labor-intensive and capital-intensive production?
Labor-intensive production: Relies more on human labor.
Capital-intensive production: Relies more on machinery and technology.
Firms choose based on cost and productivity of each factor.
How do firms aim to maximize efficiency in production?
Firms aim to minimize costs and maximize profits by choosing the most efficient production methods, considering the cost and productivity of labor and capital.
What determines who benefits from the goods and services produced?
Consumers with purchasing power (those willing and able to pay the price) benefit from the goods and services produced.
Why is the decision of ‘what to produce’ challenging?
It is challenging due to the problem of opportunity cost, as producing more of one good or service means producing less of another.
What is the relationship between consumer needs/wants and economic activity?
Economic activity is driven by the need to produce goods and services that satisfy consumer needs and wants using scarce resources.
