Nature and purpose of economic activity Flashcards
(28 cards)
What is the central purpose of economic activity?
It is the production of goods and services to satisfy needs and wants
What are the key economic decisions that should be made?
-What to produce, How to produce and who is to benefit from the good and service produced.
What is the difference between a want and a need?
A want is something you desire to increase quality of life
A need is something you as a human believe you require in order to function or survive.
Who are economic agents?
Economic agents are the individuals and firms that partake in economic activity, the demand for and supply of goods and services.
What is a free market economy?
A free market economy is where firms decide what goods and services to produce with limited intervention from the government.
How do economic incentives assist economic agents?
They provide them with the information required to tell them what goods and services to produce.
What are the 4 factors of production firms combine to produce a good or a service?
Land, Labour, Capital and enterprise.
In a free market economy we produce according to ____ and ____
Supply and demand.
What is the central purpose of economic activity?
the production of goods and services to satisfy needs and wants
What is the purpose of an economic incentive
To provide economic agents with the information required to tell them what goods and services to produce.
The 4 factors of production
Land
Labour
Capital
Enterprise
What is meant by factors of production
The resources used by firms to produce goods and services
What is the role of the entrepreneur
To take the land, labour and capital and organise them in order to produce products that will be profitable
What are the fundamental economic problems?
Scarcity and that it results from limited resources and unlimited wants
Choices have an opportunity cost
Scarcity means that choices have to be made about how scarce resources are allocated.
Define opportunity cost
The cost of the next best alternative
Define trade-offs
All of the opportunity costs of multiple alternatives that have been given up.
What is the purpose of production possibility diagrams
They illustrate the different features of the fundamental economic problem such as:
Resource allocation
Opportunity cost and trade offs
Unemployment of economic resources
Economic growth
How can a PPC show opportunity costs
By choosing good X the economic agent sacrifices the benefit of using good Y.
Define investment goods
Goods that produce a stream of income in the future. e.g. capital goods and machinery
Define consumption goods
Goods that produce a stream of income today. e.g. a car for personal use
What causes the PPC to shift outwards
Economic growth caused by an increase in the factors of production available in an economy.
Where is productive efficiency located on the PPC
Anywhere along the PPC, to show that all resources are being used efficiently.
What is allocative efficiency?
Allocative efficiency occurs when social welfare is maximised. This will occur at one point on the PPC.
A trade offs between good X and good Y will members of society less worse off, maximising social welfare.
Definition of PPF/PPC
A graphical representation of the maximum number of goods or services an economy can produce using all its resources to their full potential.
