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
what does a SHIFT INSIDE → ON the PPC curve indicate? what are the causes?
more efficient allocation of existing resource
eg. full employment
what are the 3 RESOURCE ALLOCATION QUESTIONS?
- WHAT to produce?
- HOW to produce?
- WHO to produce for?
