Chapter 1/2 Flashcards
The Economic Problem/Economic Assumptions
What are goods?
Things produced for sale
What’s the difference between needs and wants?
Needs- Basic essentials for human survival.
Wants- Luxury/desired goods and services.
Explain the problem of scarcity.
Finite/limited resources yet infinite/unlimited wants, people always want more.
Why does the basic economic problem occur?
Infinite wants> Finite resources.
Demand>Supply.
So governments have to decide where to allocate their resources
Define the basic economic problem.
How a nation allocates its scarce resources in relation to infinite wants and finite resources.
Why do choices have to be made?
There are limited recourses yet unlimited wants so individuals, firms and govs have to make decisions where to allocate their scarce resourses.
What is opportunity cost?
The cost of next best alternative given up.
What do production possibility curves show?
The maximum amount of two goods that can produced using all the resources available in the country.
What are consumer goods?
Things bought by households.
What are capital goods?
Things bought by firms to produce other goods.
What’s economic growth?
Increased output by a nation.
What causes positive economic growth?
New technology, new resources, increased efficiency, education.
What does economic growth cause the PPC to do?
Positive- Shift outwards (to the right).
Negative- Shift inwards (to the left).
What are the assumptions made by economists?
1- Individuals make rational decisions.
2-Consumers want to maximize benefit.
3-Businesses want to maximize profit.
Why is it assumed consumers want to maximize benefit?
Because consumers want to but whatever will give them the most satisfaction (best quality, lowest price)
Why is it assumed businesses want to maximize profit?
Businesses want to make decisions that will result best financially.
What are some reasons consumers may not maximize benefits?
1- Difficulty measuring satisfaction
2- Habits (brand loyalty)
3- Influenced by others
What factor would help both consumers and businesses maximize their benefits/profits?
Having access to more information
What are reasons that businesses may not want to maximize profits?
- Non-profits
- Charities
- Social enterprises (betterment of humans)
- Different decision makers (and aims)
