Micro 2 Flashcards
What is the central purpose of economic activity?
> Central purpose of economic activity is the production of goods and services to satisfy wants and needs.
Key economic decisions are…
- What to produce
- How to produce it
- Who is to benefit from what is produced
Factors of production
> These are the 4 inputs needed to make the things that people want.
- Capital.
- Enterprise.
- Land.
- Labour.
Factor payments - definition
> The costs the firms have to pay in order to acquire all of the necessary factors of production.
Capital
> These are physical, man-made resources.
>Paid for through interest rates.
Enterprise
> The person who organises the business and often takes the risk of investing their resources into the act of production.
Paid for through profit.
Land
> These are naturally occurring resources.
>Paid for through rent.
Labour
> This is the physical and mental effort of the people who make the goods and services.
Paid for through wages.
What depends on the type of industry?
> The way in which the inputs are combined will vary depending on the industry.
E.g. some will be labour intensive, capital intensive, land intensive (especially in the primary sector).
Types of goods
> Economic goods are scarce and so have an opportunity cost to being used.
Free goods have no opportunity cost as they’re in abundance.
The environment is a scarce resource.
What do PPFs represent?
> Production possibility diagrams illustrate different features of the fundamental economic problem, such as:
- Resource allocation
- Opportunity cost and trade-offs
- Unemployment of economic resources
- Economic growth.
Production possibility diagram - definition
> A diagram used to illustrate the maximum quantities of 2 goods that a producer or economy can produce in any combination over a given period of time.
Productive efficiency - definition
> A situation in which a producer or economy is making full use of the resources available.
Producing any more of one good or service must mean producing less of another.
Impossible to produce anymore.
What does a point inside the PPF represent?
> Unemployment of resources.
There are factors of production that aren’t being fully utilised.
Not productively efficient.
What does a point on the PPF represent?
> Productively efficient in output.
