Lesson 1- The Economic Problem Flashcards
Define Economics
Economics is a social science that studies human behavior.
Define resources
Refers to factors of production that are necessary to make goods/ services
Define needs and wants.
Needs can be defined as the basic requirements of life namely food, shelter and clothing. Needs are limited.
Wants are what people like to have and are unlimited.
Define factors of production
Can be defined a the resources that are needed to produce a good or service. Land- rent, labor- wages, capital- interest, entrepreneurship - profit.
Define scarcity
Refers to a situation when resources are insufficient to satisfy consumer’s wants and needs.
Define opportunity cost
Defined as the next best alternative forgone. When resources are scarce choices have to be made.
Define capital goods
Defined as goods that are used to produce consumer goods such as machinery or equipment
Consumer goods
Goods that are used up immediately such as food.
What is the basic economic problem?
As resources are scarce and human wants are unlimited, it becomes necessary for every government to decide how these scarce resources should be employed efficiently.
What are the 3 basic questions?
What to produce
How to produce
For whom to produce
What is the public possibility curve?
A graph that shows the maximum possible combinations of types of goods that can be produced by a country when all resources are fully utilized given that the level of technology is constant.
What does it mean when a point is inside the PPC?
This represents un utilized resources in the economy. The economy is not making full use of its existing resources and is inefficient.
What does it mean when a point is outside the PPC?
This combination of resources is said to be unattainable with the existing resource.
