Scarcity, choice and opportunity cost Flashcards
What is a need?
Something that is essential to survive. E.g. water
What is a want?
Something we desire, but is not essential. E.g. designer clothes
What is scarcity?
Goods and services are in limited supply
What are the factors of production?
Land: Natural physical resources
Labour: Human input into the production process
Capital: investment in capital goods that can be use to produce other consumer goods and services
Enterprise: Individuals with a business idea will invest their time and money to set up a business.
What is a trade off?
Choosing more of one thing can only be achieved by giving up something else in exchange
What is cost benefit principle?
Every choice involves opportunity costs; when you chose one good/service over another, you are loosing out on that opportunity
What does it mean when economists say “there is no such thing as a free lunch”?
Even if you are not asked too pay money for a good/ service, scarce resources are used up in the production.
What is opportunity cost?
Measures the cost of any choice in terms of the next best alternative foregone
What is the basic economic problem?
Individual wants and needs are infinite whereas resources are finite and there are therefore not enough resources to go around.
What is a free good?
It has zero opportunity cost, this means it can be consumed in as much quantity as needed without reducing its availability to others. E.g. air
