Chapter 1 - The Nature of the Economic Problem Flashcards
Define the basic economic problem.
The basic economic problem is concerned with how best to allocate scarce resources in order to satisfy people’s unlimited needs and wants.
Define economic agents.
Economic agents are households (private individuals in society), firms that operate in the private sector of an economy and the government (the public sector of an economy).
Define the private sector.
The private sector refers to the economic activity of private individuals and firms. The private sector’s main aim is to earn profit for its owners.
Define the public sector.
The public sector refers to economic activity directly involving the government, such as the provision of state education and healthcare services. The public sector’s main aim is to provide a service.
Define goods.
Goods are physical products that is produced and distributed by a business and sold to a consumer. An example is a pen.
Define services.
Services are non-physical items. It is the action of helping or doing work for someone. An example is a haircut.
Define needs.
Needs are goods and services that are essential for survival.
Define wants.
Wants are goods and services that are not necessary for survival but are demanded by economic agents to fulfil their desires.
Define economic goods.
Economic goods are those which are limited in supply.
Define free goods.
Free goods are goods which are unlimited in supply, such as air and seawater. Hence, there is no opportunity cost in terms of their output.
What are the three basic economic questions addressed by economic agents?
- What to produce?
- How to produce it?
- For whom to produce it?
