C1:The Basic Economic Problem Flashcards
What is an economic good
Having a degree of scarcity means that their is a degree of opportunity cost with consumption and product
Goods that are scarce
What is a free good
No opportunity cost because there is no opportunity cost in consumption and production (E.g. Air)
What is the basic economic problem
Resources are scarce and wants and needs are infinite so decisions have to be made to allocate resources efficiently
What is a positive statement
A positive statement is a statement which is
For example, Facts
What is a normative statement
A normative statement is a statement which involves a value of judgment of what ought to be
A need is
Things essential for survival
E.g. Foods, Shelter and water
A want is
Something desired and not required
E.g. Alcohol, Games and Phones
Define scarcity
Shortage of resources in relation to the quantity of human wants and needs
Evaluate the problem of scarcity and the requirements to make choices
Choices have to be made as
Define firm
An organisation that produces output (goods or services)
Define poverty
A situation in which individuals lack the basic necessities of life or have low income relative to their fellow citizens
Name the 4 factors of production
Labour
Capital
Enterprise
Land
How could you distinguish a positive statement
Usually contains will and is
How would you distinguish and normative statement
Usually contains ought, fair, should, unfair, good, bad, deserve, better
Cannot be tested
Name the different economic agents
Household
Firms
Businesses
Explain the role of the economic agent: Household
Decide on what goods and services are consumed and where they would put their labour
What motivates households
Increasing utility through wages
Explain the role of the economic agent: firms
Decide on what goods and services are produced
Decide on who is employed
Decide on what raw materials and factors of production are purchased
Decide on production process
What motivates firms?
Maximise profit
Explain the role of the economic agent: Government?
Regulate markets and taxation Receives expenditure Control support of firms Control how much revenue it receive Make decisions to impose tax Set up framework for other economic agents
What is the motivation for households
Utility through goods and services
What motivates governments?
Raise revenue Set up framework for economy Prevent unemployment Pursue expenditure programs Stabilise economy Meet environmental targets Allow economic growth
What happens when an economic agent is acting rationally
MAXIMISATION
How does emotion and impulse affect rationality
Out of sympathy you may give money to charity which reduces money given to goods and services
Companies may hire more people in poor areas
In sales due to frenzy and low price impulse will cause you to buy more
How does customer inertia affect rationality
CBA to change
Prevents change to lower priced goods and services which means less spending power as they are not seeking lower priced goods reducing utility
How does limited time affect rationality
Might rely on RRP (recommenced retail price) and not conduct proper research which will lead to misinformed decisions
How does loss of version affect rationality?
Avoiding caution
Not investing or sticking with high priced goods which will lead to less utility or less maximising profit due to high price of factors of production
How does social norms affect rationality
May do things that are considered as social norms which reduce utility (E.g. In America they pay tips
What is capital?
No Human Resources that provide aid to production
Why would giving to charity not challenge rationality
Improve brand reputation
Prevent boycotts due to good reputation
Money given could be given back to work
What is the reward for capital
Interest from investment
What is enterprise
Organising other factors of production And person who takes risks or innovates
What are the rewards for enterprise
Due to risk taken,they receive profit
