Economic basics Topic 1 - The Basic Economic Problem Flashcards
What is scarcity?
The situation where people’s unlimited wants and needs always exceed the resources available to satisfy them
What are needs?
Basic requirements for human survival
What are wants?
desires that can be infinite and are not needed to survive
What is the economic problem?
wants are infinite and resources are scarce so decisions have to made on what to produce, how, and for whom
What is opportunity cost?
The next best alternative given up when making a decision
Capital
the man-made physical goods used to produce other goods and services
Enterprise
actions of an entrepreneur who organises the other factors of production and risks their own money in a business venture
Labour
The workforce in the economy
Land
the natural resources on the planet including physical land, natural resources such as coal and oil and rivers
What are the different types of approach to leading a country?
Fascism, capitalism, socialism, communism
What are the choices?
What to produce
How to produce it
For whom to produce it
What are the factors of production?
Capital (tools, factories, buildings, equipment)
Entrepreneurship(combines FoPs)
Land - (natural resources, landmass, livestock)
Labour - (workforce, population)
What are renewable resources
A number of land resources whose stock can be maintained over a period of time.
non-renewable resources stock decreases over time
What is the process of production?
Combining resources to create goods and services.
Consumption
Consumption is the process through which consumers use up goods and services to satisfy themselves
What are the different type of goods?
Durable goods, soft/non-durable goods
What is a PPC/PPF curve?
A Product Possibility Curves/frontiers are graphs showing the max possible production of two goods in an economy if all resources are fully used with current technology
What are capital goods?
Goods that are used to produce other products
What are consumer Goods
goods that are consumed by consumers for personal satisfaction
Where can opportunity cost be shown easily?
On a PPC graph.
Why do economies not produce on PPF curves?
Economies do not produce on PPF curves as resources are never used to their full potential. e.g. unemployment and corruption
What economic concept is shown by a PPC diagram
Scarcity as it is not possible to produce as many as what is wanted.
How can PPCs change?
They can shift inwards or outwards
They can also change shape if the workforce specialises more on one topice
What would cause a PPC to shift inwards/outwards examples
shift inwards: disease
warfare
reduced population
Not unemployment - movement within curve
Shift outwards:
Technological breakthroughs
more resources
more workers
rational/ irrational
not based on clear thought or reason
What is revenue?
Price X quantity
What are assumptions?
things believed to be true without proof
What do economists assume about consumers and business owners?
Consumers will choose the option that grants them the most satisfaction whereas business owners will choose the option which will maximise their profit, as these are the rational courses of action
Why do consumers not always make rational decisions?
Consumers do not calculate the benefit of each individual decision
Habitual behaviour - do not want to give up habits
Herding - copy other people’s decisions
Lack of information to make the informed decision
Lazy
Why do business owners not always maximise their profit?
- The performance of some businesses may be affected by workers when the business owner delegates decision making to workers with different objectives.
- Some business owners have different objectives e.g. environment and customer care.
- Some businesses may operate as charities for a specific cause.
- Some businesses attempt to make money, but do so in such a way that it helps solve ecological problems
