Resources And Allocation Flashcards
1
Q
What are the factors of production?
A
Land, labour, capital and enterprise
2
Q
What are the rewards from the factors of production?
A
Land= rent
Labour= wages
Capital= interest
Enterprise= profit
3
Q
Opportunity cost
A
“Next best alternative forgone”
The cost of one item can be seen as a lost opportunity to consume something else.
Sometimes the opportunity cost exceeds the monetary cost.
4
Q
Issues with opportunity cost
A
Not all factors have alternatives.
Agents may have imperfect information on alternatives .
It can be difficult to switch some factors to another use .
5
Q
Trade-offs
A
People make a trade-off between choices.
E.G.you go to the cinema, but you can’t use that money for something else.
6
Q
What is the main incentive that firms based their decisions on?
A
Profit maximisation
