Microeconomics - L1 Decisions and the basic economic problem. Flashcards
What are goods?
Items that can be purchased which are visible and tangible.
Eg. Car, Tennis racquet, Milk, Bread, Shoes
What are services?
Actions which people perform often in return for payment.
Eg. Gardening, Hairdressing, Teaching, Accounting.
What are durable goods?
Include an example.
Goods which have a long shelf life.
Eg. Tinned peaches, washing machine, car.
What are non-durable goods?
Include an example.
Goods which have a relatively short shelf life.
Eg. Fresh fruit and vegetables, meat
What are needs?
Include two examples.
Items that are essential for survival.
Eg. Shelter, food, clothing, water.
What are wants?
Include two examples.
Items that are not essential for survival and are considered more of a luxury.
Eg. Laptop, wifi, brand name clothing, luxury car
What are resources?
List the 3 types.
Used to satisfy needs and wants
‘Factors of production’ - used to produce goods and services
3 Types - Natural, Labour, Capital
What is economics?
The study of decision making and the opportunity costs that come with making those decisions.
What are natural resources?
List 3 examples.
Resources that come from the environment
Eg. Water, coal, land, copper, gold
What are labour resources?
List 2 examples.
Labour resources are human resources (both physical and mental exertion)
Eg. Bricklayer - physical exertion
Eg. Lawyer - mental exertion
What are capital resources?
List 2 examples.
A combination of natural and human resources.
ie. Humans use natural resources to produce/make capital resources.
Eg. Machinery, tractors, vehicles, tools
What is the basic economic problem?
Why is it a problem?
Our needs and wants are unlimited but the resources we have to satisfy our needs and wants with are limited. Therefore, the basic economic problem is relative scarcity.
This is a problem because our resources are relatively scarce compared to our needs and wants . Therefore, we can’t have everything we want, so we have to make choices.
What is relative scarcity?
Relative Scarcity is the basic economic problem.
That is, our needs and wants are unlimited but the resources we have to satisfy them with are limited (or relatively scarce) by comparison.
What is opportunity cost?
Opportunity cost is the value of the next best alternative that is foregone, whenever a choice or decision is made.
Examples:
* You have $50 in your pocket, you decide to go out for dinner with some friends, instead of buying a new shirt for summer = opportunity cost is the new shirt*
* Free pizza is being offered on Enderly lawn, however there is a long queue, what is the opportunity cost of consuming a piece of pizza? = opportunity cost is the time spent in line.*
