Scarcity, choice and opportunity cost Flashcards
Define the Fundamental Economic Problem:
Scarce resources but unlimited wants
Define Resources
inputs available for the production of goods and services
Define Wants
The goods and services that people may want to have but are not always realized.
Define Needs
Things that are necessary for survival, such as food.
Define Scarcity
a situation in which wants and needs are greater than the resources available.
Define Choice
Resources are scarce so individuals, firms and governments have to consider alternatives.
What are individual preferences influenced by?
Individual preferences are influenced by
* culture
* upbringing
* life experiences.
Who are required to make choices due to limited resources and unlimited wants?
- individuals
- firms
- governments.
Define Factors of Production
Resources or inputs available in an economy that are used in the production of goods and services.
Define Firm
Any business that hires factors of production to produce goods and services.
Define Opportunity Cost
The cost expressed in terms of the next best alternative that is forgone when a choice is made.
What are the three questions that all economies have to answer?
- What to produce?
- How to produce?
- For whom to produce?
Why must Economies decide what to produce?
- Economies face limitations and choices must be made
Why must Economies decide how to produce?
- Maximizing resource utilization
- Considering economic and ethical factors
Why must Economies decide for whom to produce?
- Distribution of goods/services
- Policies to address wealth and income inequality
