Basic Economic Problem Flashcards
What are the basic needs for survival?
- food
- water
- clothing
- shelter
What is a want?
Something we would like to have that we currently do not
What is a need?
A need is complex as if it is not met then it makes like very difficult
Why are individuals, businesses and governments wants unlimited?
- goods eventually wear out and need to be replaced
- electronic appliances
- new or improved products become available
- windows 8 for computers
- human nature that once one want is satisfied, they want more
- innate greed
- advertising creates new wants
- downloading ringtones
What are some limited resources?
- coal and oil will run out one day
- there is a limited supply of workers
- there is a limit of how much investment a firm can make
- there is a shortage of talent to ‘alpha minds’(entrepreneurs)
What is the basic economic problem?
- scarcity
- this arises because human wants for goods and services are infinite but the resources required to produce them are finite
- this is a relative concept as resources are not scare in themselves, that are scarce in relation to the demands placed upon them
How is scarcity a universal problem?
- applies to all economies
- no country in the world has enough resources to produce enough goods to completely satisfy all the wants of its people
- scarcity will always exist and cannot be eliminated; it can only be reduced
What is shortage?
- occurs when the demand for a good is greater than the supply of it
- in a market economy, shortages usually don’t last long and will be cured by a rise in price and/or an increase in supply
- demand is a want backed up by the ability to pay and is therefore limited by income
What is scarcity?
- this is different because we emphasise unlimited wants (not demand) and how they are never fully satisfied
- this makes scarcity a permanent situation
- if there was no shortage there would still be scarcity because of all those consumers who want the product but cannot afford to pay
What is opportunity cost for an individual?
-the opportunity cost of choosing a product is the next item oh his/her scale of preference
What is opportunity cost for a producer?
-the opportunity cost of producing a good is the next most profitable product which could have beeen produced with the resources used
What is opportunity cost for a government?
- the opportunity cost of providing a service is the nest best service which it could have provided with the resources used
- an economy investing its resources in new capital goods sacrifices current production of consumer goods
What does ‘modern industrial economies are dynamic’ mean?
-they are in a continual state of change
What does changing consumer demands and production methods mean?
-some industries will be growing (electronics and finance) whilst other are declining (coal and shipbuilding)
Why do resources need to be mobile (able to change their location or their use)?
-resources which cannot change either their location or use run the risk of becoming unemployed
What is geographical economics?
- factor or resource mobility is the speed and ease with which a resource can move from place to place
- if someone moves from America to Scotland
What is occupational economics?
- factor or resource mobility is the speed and ease with which a resource can change use
- if someone changes job from farming to another type of employment like teaching
In what forms can efficiency come in?
- technical
- the maximum output from minimum inputs
- economic
- the most valued goods and services are produced and no one can be made better off by transferring resources
- resources have to be used in the most technical efficient way before economic efficiency can happen
- the most valued goods and services are produced and no one can be made better off by transferring resources
The best use of resources is called economic efficiency. This happens:
- when technical efficiency is achieved
- products are produced at minimum unit cost
- when allocative efficiency is achieved
- used to produce those goods and services which consumers most want
- when all resources are employed
What can efficiency conflict with the aim of?
-equity and fairness
What do most advanced economies base their production decisions on?
- demand
- the demands of a few rich people could be satisfied at the expense of the demands of a large number of poorer people
- although the economy could be said to be efficient, it is not equitable (fair)
What is efficiency concerned with?
-maximising satisfaction
What is equity concerned with?
-social justice and fairness
What are production possibility curves/frontiers (PCCs/PPFs)?
-shows the possible combinations of goods and/or services that can be produced by a business or country
What types of goods does a PPC show?
- capital goods
- those which are produced in order to produce consumer goods
- machinery and equipment
- those which are produced in order to produce consumer goods
- consumer goods
- those which are produced by capital goods for final consumption
What is the maximum output of a PPC called?
-potential output
How are all points on the curve possible?
-if all existing resources are being used Ina technical efficient way
What does it mean if the economy is producing at a point inside the curve?
- it is producing less than it could
- this could be because some resources are unemployed or they are being used inefficiently
Why are point outside the curve not possible?
-the economy does not have the productive capacity
What does any point on the curve represent?
- a technically efficient use of resources
- an economy still has to make the decision a kit what combination of goods to produce (opportunity cost)
What can a PPC be used to show?
-the opportunity cost of producing a product
