Basic Economic Problem Flashcards
What is the Basic Economic Problem?
How to allocate scarce resources given unlimited wants
What is the purpose of Economic Activity?
Is the production of goods and services to satisfy our ever changing needs and wants.
Where do resources move in terms of supply?
Resources move towards were they are shortest in supply, and away from were they are least demanded or supply is greater.
What are the factors of production?
Capital
Enterprise
Land
Labour
C.E.L.L
What is Capital?
Man made aids to production
- Technology
- Machinery
What is Enterprise?
Entrepreneurs - Individuals who take risks, who innovate.
What is Land?
Where goods can be produced EG - Farmland
What is Labour?
Human Resources
What CHOICES have to be made because of the Basic Economic Problem?
WHAT TO PRODUCE - Businesses decide based on consumer demand
HOW TO PRODUCE - Businesses decide upon what is most cost effective
FOR WHOM TO PRODUCE FOR - Those who have enough to afford it.
Opportunity Cost Definition
The cost of the next best alternative that we have given up when a choice is made.
What is the Rationing Function?
Occurs only when resources are scarce so demand exceeds supply so prices are driven up, this is to discourage demand and conserve resources.
What is the Signalling Function?
As price changes sends contrasting messages to consumers and producers about whether to enter or leave a market.
What is the Incentive Function?
Something that motivates a producer or a consumer to follow a course of action or change their behavior.
High prices - Producers enter or supply more to a market
Low Prices - consumers increase demand.
