Exam Revision Part A Flashcards
List the three economic questions
- What to produce 2. How to produce 3. For whom to produce
Define opportunity cost
Opportunity cost is the alternative use to which economic resources could have been allocated. This also applies for consumers deciding to purchase one item but having two options. For example the consumer could be faced with two options but only has enough money to buy one item. The option the consumer didn’t choose is the opportunity cost.
Define the economic question : What to produce ?
Ultimately the consumer decides on what is produced. As the consumer demands to buy a product/service where the entrepreneur coordinates land, labour and capital resources in the production process, to make the good/service that the consumer wants and needs. The producer will altar the product or altar it in order to make a product that consumers want.
Define the economic question: how to produce ?
When selling a product, the entrepreneur needs to make important decisions such as the location, quality of ingredients, materials and staff. The entrepreneur has to decide on how to produce the commodities the consumers want. In deciding how to produce, the entrepreneur will seek to maximise profit by minimising production costs.
Define the economic question : For whom to produce ?
Refers to how the economic benefits from production will be distributed. For example what percentage of each dollar spent should go to wages versus profit.
Define and list economic resources
The inputs required by the producer to complete the production process. These include: land, labour ,capital and enterprise.
Define land
Refers to natural resources used in the production process. These may include: forests, oceans, mineral reserves and fertile pastures.
Define labour
The person power available to work in the production process. These may include people skilled in the electrical, plumbing, teaching and cooking business.
Define capital
The machinery, plant and equipment made by people to assist in the manufacture of commodities and provision of services. An example of this would include a tractor.
Define enterprise
The qualities some individuals acquire that make them able to accurately perceive market opportunities and effectively coordinate the production process
Define needs and wants
A need is an item that is necessary to survive everyday basic life. Examples include food,water shelter, warmth and basic clothing. Compared to a want that consists of any item that people desire but is not essential to everyday life.
Define scarcity
Is the limited amount of economic resources versus the excessive amount of ongoing wants and needs. This is associated with the economic problem.
Define substitute and complementary goods
A substitute good is an alternative commodity that can be used for the same purpose,often at a cheaper price. Whereas a complementary good is something given to a customer for free when buying something else. For example when buying a computer the customer could receive a free mouse pad.
The factors of production
The economic resources: land,labour,capital and enterprise.
Define law of demand.
States that the consumer demand is inversely proportional to the movement in price of that product. Meaning the higher the price of an item, the less that will be demanded. Therefore the lower price of an item, a higher amount of products or demand.
