Chapter 1: Basic Economic Ideas Flashcards
What are the factors of production
Land, labour, capital, enterprise
Diff between short-run V.S long-run V.S very long-run
Short-run: only can change 1 factor of production
Long-run: can change all factors
Very-long-run: can change all factors and also factors beyond the firm’s control can change.
What is the problem of scarcity?
As humans, we have unlimited wants but limited resources.
How to deal with the problem of scarcity?
- what to produce?
- how to produce? (labour intensive/ capital intensive)
- for whom to produce?
What does opportunity cost mean?
The value of the next best alternative foregone.
What does a production possibility curve (PPC) show?
- The maximum combination of two goods that can be produced in an economy.
- represents the productive capacity of the economy
Free goods
Goods with no price attached and can be enjoyed by all. No scarcity, no opportunity cost.
e.g rain, sunlight
Explain consumer goods
Goods produced to satisfy the wants and needs of the buyer
Explain capital goods.
Man-made tools that are used to produce other goods e.g consumer goods
What is a planned economy?
- Centralized. Resources are allocated by govt.
- Social welfare incentive, not price incentive.
- Govt sets price
What is a free market?
- Prices decided by market mechanisms (supply&demand)
- Motivated by self-interest (for firms, profit-maximising; for consumers, utility-maximising)
- consumer sovereignty
What is specialisation?
individuals/firms/economies focus on producing products where they have an advantage
Division of labour
Production is broken down into smaller, narrowly defined tasks
Positive statement
Normative statement
Positive is fact-based, normative is opinion-based.
