Chp. 1: The Economic Problem Flashcards
Define economics
the study of the ways in which a society decides to use its scarce sources to satisfy wants
How is inductive reasoning different to deductive reasoning?
Inductive - use of specific facts to generate a general law
deductive - drawing conclusions about an event from a law that already exists
Define collective wants
wants that a substantial amount of people want or something that will benefit a large group of people eg. library or a highway
Define ceteris paribus
Latin
‘other things being equal’
basically, it mean, “if nothing comes and effects it, such and such will occur”
What is the general law in relation to wants and resources?
wants are unlimited however resources are limited
What is the difference between needs and wants?
Needs are essential for life in society
Wants are things we desire because they give us satisfaction
Define the three different types of wants
recurrent - eg. food; keep needing to be satisfied
complementary - eg. car + petrol + tyres; wants that go together
competitive - eg. beef or chicken; can be substituted for each other
Define opportunity cost
the best alternative opportunity/option forgone (not chosen).
eg. unable to do HPE because you study economics
What is a PPF? What does it model?
A PPF stands for a production possibility frontier (curve for C)
It models opportunity cost often comparing 2 things
Along the frontier (line), there is the opportunity to purchase other things
What does a PPF/C assume?
An economy uses resources fully and efficiently
There are only TWO goods being produced
All resources can produce the goods
Resources and technology are fixed
What are the four factors of production?
Land - materials provided by nature
Labour - the workforce
Capital - man-made instrument of production
Enterprise - organizing and combing factors to create a productive establishment
What factors determine the quality and quantity of labour?
production per worker
health, age, education, skill and the number of workers
Would you consider enterprise a factor or production or just a type of labour?
it is considered a factor of production as it does much more work than a worker in the workforce, they have to actually create a productive business or establishment.
What is the difference between allocative and technical/productive efficiency?
Allocative efficiency - distribution of resources in the most efficient way
Technical efficiency - maximising the production (quality & quantity) of goods and services
Why might a government focus of allocative efficiency rather than technical?
- satisfy the most amount of people
- protect the environment
- not waste money
- maintain high standards of living for people
How would you describe the economic problem?
- scarcity leads to necessity for choice
- to decide this you must consider…
1. what & how much to produce
2. how to produce it
3. for whom - it takes a combination of consumers, producers and the government to ‘solve’ the problem
Explain a private-enterprise economy
- market economy allows; - ownership of private property - use of market pricing - varying degrees of government control - self-interest as the motive for, or incentive to, work
Define customer sovereignty
the ability of consumers to determine the pattern of production through their spending descisions
Suggest reasons for the decline in subsistence economies.
- limitations of scarce resources
- isolated communities
- absence of markets and money
- lack of technology
- promotes a low standard for living
Simply; they’re not keeping up with the world around them
Why might consumers want to be apart of capitalism rather than a socialist/command economy?
A private-enterprise economy - provide freedom of spending, high quality of goods and services, high standard of living and overall more economic freedom
Socialist/command economy - state control of planning and spending, less political/economic freedom, production inefficiencies and little flexibility
