Economics Flashcards
Economics
The study of how scarce resources are allocated to fulfil the infinite wants of consumers; a study of rationing systems.
Needs
The basic necessities that a person must have in order to survive. E.g. food, water, warmth, shelter, clothing.
Wants
The desires that people have. E.g. bigger homes, iPhones, etc
The Basic Economic Problem
There is a scarcity of resources to satisfy unlimited wants. There are finite resources and infinite wants. This means a choice must be made, which leads to an opportunity cost.
Scarcity
The issue of there being limited resources to fulfil infinite wants.
Not enough resources to fulfil all the wants.
Opportunity cost
- The real cost of the next best alternative that is forgone when a choice is made.
- ‘Next best alternative’ implies a scale of preference
- Usually measured in terms of goods, services, or monetary value given up (relative to the alternative course of action)
Fundamental economic questions
- What to produce (emphasis on agriculture, manufacturing, housing, leisure?)
- How to produce (labour intensive, land intensive, capital intensive?)
- For whom to produce (even distribution? More for the rich? For those who work hard?).
- How much to produce
Factors of production
Land, labour, capital, enterprise.
Land
- Natural resources: available for production
- Renewable resources: those that replenish
- Non-renewable resources: cannot be replaced
Labour
Physical and mental effort of people used in production.
Capital
All non-natural (manufactured) resources that are used in the creation and production of other products.
Enterprise/entrepreneurship
Refers to the management, organisation, and planning of the other three factors of production.
Interdependence of factors of production
Free goods
- Does not incur any opportunity costs in its production or when consumed
- Not relatively scarce (not limited in supply)
- Will not have a price
Economic goods
- Has an opportunity cost (goods that use resources which could have been put to use producing something else)
- Uses scarce resources
- Will have a price
Economic Thinkers
Adam Smith, John Maynard Keynes, David Ricardo, Karl Marx
Schools of Economic Thought
Classical, Keynesian, supply side, moneterism.