Microeconomics Unit 1.1 Economic Problem Flashcards
What is the economic problem?
Humans have unlimited wants and needs but limited resources.
What is an economic good?
There is a limited supply. These goods are scarce.
What is a free good?
This is not usually seen as limited in supply
Give an example of a free good.
Air
What are the three questions of the economic problem?
What should be produced?
How should it be produced?
For whom should it be produced?
What is microeconomics the study of?
The study of the behaviour of individuals, firms and governments in relation to the allocation of products and/or resources.
What is scarcity?
When there is a limited amount of something
Macroeconomics
The study of the behaviour and performance of the economy as a whole?
What is a positive statement?
A factual statement which can be tested.
What is a normative statement?
An opinion based statement.
What are economic agents?
Key groups involved in the economic problem- e.g. government, firms and households.
What are the two key roles of households in the economy?
Consumers
Providing labour or a workforce.
What are the two key roles of firms in the economy?
Producers of goods and services.
Purchasers of goods and services in the production process.
What is the role of the Government in the economy?
Taxation
Spending
Social Welfare
BUT the role of the government depends on the political party
What is rationality?
The assumption each economic agent (firms, households and governments) act in their own best interests:
Households maximise utility
Firms maximise profit
Governments maximise welfare.