Scarcity, Choice and Opportunity Cost Flashcards
What do ‘wants’ refer to?
All goods and services people would consume if they had unlimited incomes
What do ‘resources’ refer to?
Inputs used to produce goods and services
What is scarcity?
Scarcity is the problem arising from limited resources and unlimited wants. It is the excess of human wants over what can actually be produced with limited resources to fulfill these wants.
What are resources/factors of production?
Land, Labour, Capital, Entrepreneurship
What is land?
Land includes all productive resources supplied by nature, including literal plots of land, renewable and non-renewable resources of trees, rivers, minerals, oil and natural gas
What is labour?
Labour is the mental and mental human effort directed at production of goods and services
What is capital?
Capital is a man-made resource used in the further production of other goods and services rather than being consumed for their own sake.
What is entrepreneurship?
- Separate from labour
- Managerial ability
- Organises and manages factors of production
- Innovate new products and ways of production
- takes the risk of being in business
What is positive economics?
- Value-free arguments
- Describe and explain economic facts and events observed objectively
- A statement of fact that can be tested for accuracy
What is normative economics?
- Considers the outcomes of economic behavior
- Questions whether the outcomes are good or bad
- Statement of value that cannot be proved or disproved by a simple appeal to facts
What are the two main branches of economics?
Microeconomics and macroeconomics
What is microeconomics?
- Studies individual parts of the economy
- E.g. markets of specific goods and services, behavior of individual economic agents
- Concerned with demand and supply of goods, services and resources
What is macroeconomics?
- Studies the entire economy
- Economy-wide phenomena e.g. changes in unemployment, general price level and national income
What does the central problem of scarcity imply?
It is necessary for us to make decisions on how limited resources should be utilised in trying to obtain the highest level of consumer satisfaction
What are the 3 questions asked in order to allocate scarce resources?
What to produce, and how much to produce?
How to produce?
For whom to produce?
