Econ - The basic economic problem Flashcards
What are needs?
Basic essentials of life. THey are limited and common for everyone. like shelter, food, clothes.
What are wants?
These are not essential for life its a desire. They are unlimited and different from person to person.
For example pizza, branded clothes and sports cars.
What is the basic economic problem?
Scarcity which is when we have limited resources/factors of production while our wants are infinite.
We don’t have enough resources to produce everything that humans want
What is a free good?
A good that has 0 opportunity cost meaning it can be consumed in any as much quantity as needed without reducing its availability to others
What is economic good?
A good that has an opportunity cost in consumption and reduces is availability to others
What are factors of free goods?
unlimited in supply no monetary value no ownership no opportunity cost involved scarce resources not involved e.g. sunlight, air
What are factors on economic goods?
limited in supply have a monetary value there is ownership opportunity cost involved scare resources areinvolved e.g. cars, gold
What are the 4 factors of production
Land, capital, enterprise and labor
Explain Land
Land covers all natural resources used in production
Some are renewable (sunlight, wind energy), and some are non renewable such as coal and crude oil.
Explain capitalS
Man made goods or means of production that are used in the production of other goods such as machinery and tools.
e.g. getting a fleet of delivery vehicles for a business
What is a capital good?
Something man made which we don’t directly consume but used to produce other goods
What is a consumer good?
A good that we directly consume which are wanted for the satisfaction they provide
What’s different about capital and consumer goods?
Capital goods are for further production and consumer goods are for final consumption
What is gross investment?
The total value of the output of capital goods it referred to as gross investment or sometimes just investment.
What is depreciation
Every year some capital goods physically wear out adn are replaced by newer capital goods that add to the existing stock of capital. The value of replacement capital is referred to as depreciation or capital consumption.
What is net investment
net investment = gross investment - depreciation
It is the value of new capital goods made without the replaced goods.
Explain labor
Labor covers all human mental and physical effort involved in the production of goods and services.
Human capital is the educating, training, skills and experience that workers have gained.
What affects the supply of labor?
Number of workers available
The number of hours which they work for
What determines the number of available workers?
Size of population, age structure of the population, retirement age, school leaving age, attitude towards working women
What determines the number of hours people work for?
Length of the average working day, whether they work full or part time, duration of over time, Length of holidays, time lost to illnesses
What is labor force
The people who are working or are seeking work who are of working age (typically between school leaving age and retirement age)
Explain enterprise
Enterprise refers to an individuals willingness and ability to put in finance, bear uncertain risks, and make decisions in a business.
Entrepreneurs are people who organise the other factors of production
What are the ways factors can be mobile and explain them?
There is occupational mobility and geographically mobile.
Occupationally refers to to capability to change its use
Geographically refers to how a factor of production can move form one location to another
Mobility of land
Most land is occupationally mobile because land used for a school could be used for agriculture. Wood from trees can go to making paper or building tables.
Land itself is not geographically mobile but resources and animals can be moved from one location to another.
Mobility of labor
A workers geographical mobility depends on:
Family ties, price of housing, lack/or having information,restriction on the movement of workers, differences in educational systems in other counties.
A workers occupational mobility depends on:
Information on vacancies in other jobs and the qualifications of the worker
Mobility of capital
Geographical mobility depends on the type of good for example a printer used by a bank can moved to another location but something like a coal mine cannot be moved
Occupational mobility depends on how specialised the good it, a coal mine is not occupationally mobile but a computer can be used for different purposes
Mobility of enterprise
Enterprise is the most mobile of all the factors of production as skills involved can apply to any industry and entrepreneurs are also geographically mobile
Factors affecting the supply of entrepreneurs?
Good education system, lower taxes on a firms profits, reduction in government regulations can encourage people to start up businesses.
What are the payments to each factor of production?
Land - Rent
Capital - interest
Labor - Wages/salaries
Enterprise - Profit
What is opportunity cost?
The loss of other alternatives when we make a choice.
What are the main groups that make up an economy?
Consumers, producers and the government
What is a consumer?
Someone who purchases good or services for their own use.
Opportunity cost of spending on one good sacrifices the next best alternative
What is a producer?
A producer is someone who creates and supplies goods or services
Deciding what to produce and where to produce involves opportunity cost
How does opportunity cost relate to governments
Governments chose what to spend on which involves opportunity cost as money used for subsidies could have been used to build a school etc.
What does a rightward/leftward shift of the PPC mean
Rightward = economic growth Leftward = economic recession
What are reasons for economic growth/recession?
growth - newfound resources, better production techniques, better technology, better education leading to better labor
recession - natural disaster, epidemic, civil war, fall in business investment and consumption
