MICRO: The Economic Problem ( incl FoP, Scarcity and Incentives) Flashcards
What is the economic problem?
How can the available scarce resources be used to satisfy people’s infinite wants and needs as effectively as possible?
What are the four factors of production?
- Land
- Labour
- Capital
- Enterprise
Define land
Includes all the natural resources in the land and on it
What are examples of land?
- Non renewable resources, such as natural gas, oil and coal
- Renewable resources like wind or tidal power
- Materials extracted by mining (e.g diamonds and gold)
- Water
- Animals found in an area
What is a non renewable resource?
They will eventually run out if we keep using them
What is a renewable resource?
They can regrow or regenerate. But some have to be used carefully to not run out - e.g enough trees need to be planted to replace those used.
Why are things that fall under the category of land scarce?
There aren’t enough natural resources to satisfy the demands of everyone.
Why is air an exception?
- Usually enough for everyone
- But air can be polluted, as seen in big cities.
- Environment considered to be a scarce resource.
What is labour?
Work done by people contributing to the production process.`
What is the labour force?
The population available to do work
How can different levels of education, experience or training affect labour?
They can make some people more valuable or productive in the workplace than others - they have a greater amount of human capital.
What is capital?
Equipment used in producing goods and services
Why is capital different from land?
Capital has to be made first
What is an example of how much of an economy’s capital be paid for by the government?
A country’s road network is a form of capital
What is enterprise?
Enterprise refers to entrepreneurs who take risks and create things from the other 3 FoPs.
What do entrepreneurs do?
They set up and run businesses using available FoPs. If the business fails, they can lose a lot of money. But the reward for if it succeeds is profit.
What are goods and services?
- GOODS - physical products that can be touched - phones, books etc.
- SERVICES - intangible things - medical checkups, train journeys.
How is consumption a form of economic activity?
Consuming something means trying to satisfy a need or want, you can consume both goods and services.
What are three questions on how to produce with limited resources?
- What to produce?
- How to produce it?
- Who to produce it for?
What are the economic agents and what do they do?
- Producers - they make goods or provide services
- Consumers - people or firms who buy the goods and services
- Governments - set rules that participants in the economy follow, and also produces and consumes goods and services.
How do these economic agents make decisions that affect how resources are allocated?
- Producers decide what to make and selling price
- Consumers decide what to buy and what they’re willing to pay
- Govts decide how much to intervene in how the other two act.
How can people’s incentives answer these three questions?
What? - goods that can make profit
How? - the most cost efficient production of a good, to maximise profit
Who? - consumers who’re willing to pay for these goods
