E1 The Basic Economic Problem Flashcards
define THE ECONOMIC PROBLEM
unlimited wants exceed limited resource
what are the FACTORS OF PRODUCTION?
land, labor, capital, enterprise
define LAND
+ what’s the reward?
natural resources
reward is rent
define LABOR
+ what’s the reward?
human resources
reward is wage
define CAPITAL
+ what’s the reward?
manufactured resources used to make other g/s
reward is interest
define ENTERPRISE
+ what’s the reward?
entrepreneur who makes decisions and takes risks
reward is profit
define OPPORTUNITY COST
cost of giving up the next best alternative
difference between ECONOMIC GOOD & FREE GOOD
economic good: takes resource, has oppo cost
free good: doesn’t take resource, no oppo cost
factors that influence the MOBILITY of FOP?
GEO - transport, family, housing cost
OCCU - E&T
factors that influence the QUANTITY/QUALITY of FOP?
QUANTITY:
investment (capital), size+age of population
QUALITY:
investment (E&T, tech, healthcare), incentive, innovation, competition, mobility
define PPC
shows max. output of two goods with existing resource/tech
shows opportunity cost when all resources are used efficiently
what does a point INSIDE PPC curve indicate? what are the causes?
inefficient resource allocation
eg. unemployment
what does a MOVEMENT ALONG PPC curve indicate?
reallocation of resource
what does an OUTWARD SHIFT OF PPC curve indicate? what are the causes?
increase in PRODUCTIVE CAPACITY (increased quantity+quality of FOP)
eg. investment in tech/capital, E&T, increased labor force population, discovery of new resource
what does an INWARD SHIFT OF PPC curve indicate? what are the causes?
decrease of productive capacity
eg. natural disaster, war
