E1 Flashcards
What is the nature of the economic problem?
People’s wants are unlimited and the resources to provide for them are limited therefore scarcity exists. We must choose what is produced and give up other things (opportunity cost). An economic system must decide what is produced, how it is produced and for whom it is produced.
What do we need?
Goods and services necessary for survival
What do we want?
Goods and services not necessary for survival
What do we want?
Goods and services not necessary for survival
Define economic good
There is an opportunity cost in producing the good as it takes resources to produce
Define free good
A good that is free because there is more than enough available to satisfy the demand for them
Define factors of production
The scarce resources used in the production of goods and services
Define capital
Any human made good that is used to produce other goods and services - they are aids to production
Define enterprise
Enterprise is undertaken by entrepeneurs who take a risk (with their money, time…) and bring together the other 3 factors of production to start a business in order to make a profit.
What are the mobility of the factors of production?
The mobility of the factors of production refers to the extent that resources can be changed from one production process to another
What are the factors that affect the mobility of land?
The revenue gained from alternative use:
If the price of houses go up, then the price of land to build houses on will also go up, therefore more land will be transferred from agricultural uses to provide housing
What are the factors that affect the mobility of labour?
The demand for a good or service:
Labour is derived demand so if the demand for a good or service increases, then the demand for the labour that produces that good or service will increase too.
occupational mobility influenced by education:
The more education a person receives, the more qualifications they have so they will have more job choices
occupational mobility influenced by training:
The more training a person receives, the more skills they have so they will find it easier to switch jobs
geographical mobility influenced by price/availability of housing: Where there is cheaper housing, workers will find it more attractive to work in that area.
geographical mobility influenced by family ties:
people may be reluctant to move to another place to work because their children are at school in a particular area.
What are the factors that affect the mobility of capital?
The different uses the capital can be put to:
The more specialised a machine is in one area, the less mobile it is to be moved into another
What are the factors that affect the mobility of enterprise?
Enterprise is the most mobile factor of production. The skills involved can be applied in every industry.
What does it mean by labour is derived demand?
If the demand for a good or service increases then the demand for the labour that produces that good or service will increase
What increases the quantity of land?
Land reclaimation
What increases the quality of land?
Irrigation and fertilisers
What increases the quantity of labour and enterprise?
Increase in birthrate, immigration, decrease in the natural rate of unemployment
What increases the quality of labour and enterprise?
Education, Training, Apprenticeship programmes
What increases the quantity of capital?
Invetment
What increases the quality of capital?
Technological advancements, Research and development (better machines) to increase innovation
Define opportunity cost
Opportunity cost is the benefit lost from the next (second) best alternative given up when making a decision
Why is opportunity cost important?
Opportunity cost shows that a choice must be made when making a decision because resources are too scarce to meet all our wants (because wants are unlimited, but all resoruces are limited)
What is the Production Possibility Frontier (PPF) ?
It shows the maximum potential of two goods or services that can be produced using all the resources that an economy has available
An decrease in any or all of the factors of
production will cause a_______ in the PPF
An decrease in any or all of the factors of production will cause a decrease in the PPF
In a PPF showing consumer goods and capital goods, an increase in the production in capital goods will come with what it in the short run?
There will be an opportunity cost of consumer goods in the short run as more capital goods are being produced.
In a PPF showing consumer goods and capital goods, an increase in the production in capital goods will come with what it in the long run?
In the long run, increased production of capital goods will shift the PPF outwards and therefore increase the potential amount of capital and consumer goods that can be produced.
An increase in any or all of the factors of production will cause an _____ in the PPF
An increase in any or all of the factors of production will cause an increase in the PPF
