Chapter 1: Basic Economic Problem Flashcards
Define a resource [1]
Resources are the inputs required to produce a good or a service
Define the basic economic problem [1]
There are finite resources and infinite wants
What does the basic economic problem lead to? [1]
Scarcity
Compare an economic and free good with an example [4]
- A free good is one that doesn’t require scarce resources for its production and are abundant in supply. Free goods don’t have an opportunity cost.
For example: sunlight - An economic good is one that requires scarce goods for its production and is hence limited in supply. Economic goods have an opportunity cost.
For example: paper
Describe the flowchart of the basic economic problem [3]
Basic economic problem –> scarcity –> choice –> opportunity cost (only when the other choice holds value is there an opportunity cost/loss)
Define opportunity cost [1]
Opportunity cost is the value of the next best alterative forgone
Which choice do all economies chose? [1]
All individuals, firms and macroeconomies choose the choice with the least opportunity cost
What are the factors of production [4]
- Land (any natural resource)
- Labor (a workforce)
- Capital (any man-made resource)
- Enterprise
What is meant by land as a factor of production? [1]
Any natural resource is called land. For example: crude oil, trees, ores
What is meant by labor as a factor of production? [1]
The physical and mental effort which goes into the production of a good or service
What is meant by capital as a factor of production? [1]
Any man-made resource is known as capital
What is meant by enterprise as a factor of production? [1]
The factor of production which takes the risk of employing other factors of production to produce a good or service
What is the reward for each factor of production? [4]
Land: rent
Labor: wages
Capital: interest
Enterprise: profit
What is meant by a producer? [1]
The people and organizations that make and sell goods and services are known as producers
What is meant by consumption? [1]
The using up of goods and services to satisfy human needs and wants.