Basic Economic Problem and OC Flashcards
What is the purpose of economic activity?
To produce goods and services to meet our needs and wants
What are Needs?
Something you must have to survive or to do something
What are wants?
Something you desire but is not essential
What is the basic economic problem?
There are infinite wants and finite resources. Resources are scarce in relation to wants.
What are the 3 economic questions?
What to produce? How to produce? For whom to produce?
What are the 4 factors of production?
Land - natural physical resources
Labour - human input
Capital - man made resources such as machinery
Enterprise - the ability to organize, coordinate and take risks in the production process
What is microeconomics?
Branch of economics that studies the behaviour of individuals and firms in the market.
What is macroeconomics?
Considers the economy as a whole
What are the rewards for FOPs?
Land - rent
Labour - wages
Capital - interest
Enterprise - profit
What do rational economic agents aim to maximise?
Consumers - total utility
Workers - wages and benefits from work
Producers - profit
Government - social welfare
What is opportunity cost?
It is the value of the next best alternative given up when a choice is made
What are positive statements?
They do not include value judgements, they are based on objective facts and they can be proven or disproven.
Example: A rise in minimum wage decreases employment.
What are normative statements?
They are subjective statements and they carry value judgements.
Example: The government should increase spending on healthcare.
