Introduction to Economics Flashcards
What is the economic problem?
Limited resources in an economy/society which leads to fundamental problem of scarcity.
What is scarcity?
A situation that arises because people have unlimited wants in the face of limited resources, therefore choices must be made.
4 Factors of Production
Land
Labour
Capital
Enterprise
Free and Economic Goods
Free Good - a good with zero opportunity cost (not scarce)
Economic Good - a good with an opportunity cost (scarce)
Positive Statement
a statement about what is e.g. about facts
Main Economic Agents
Households
Firms
Governements
Households (consumers)
make choices about their expenditure and where to supply labour (where to work)
objective - to maximise utility from expenditure
Normative Statement
a statement involving a value judgement that is about what ought to be
Firms
make choices about which goods and services to produce
objective - maximise profit
Governments
make choices about types of taxation and how much to tax
objective - maximise welfare (well-being) for society
What is Opportunity Cost?
The benefits forgone of the next best alternative.
What is a centrally planned economy?
An economy where the only the government decides how best to allocate the scarce resources
Advantages of a planned economy
Abuse of monopoly power is prevented
inequality in society is reduced
will ensure that everyone can access basic necessities
Disadvantages of a planned economy
limits democracy
may not meet consumer preferences
What is a free market economy ?
This is an economy where the government leaves the market to its own devices
There is no government intervention
