Sec.1 The basic economic problem Ch.1-4 Ian Flashcards
The basic economic problem
The issue with the scarcity of resources but unlimited wants and needs (demand).
Opportunity cost
The loss of potential gain from other alternatives when one alternative is chosen.
Economic goods
Goods and services that require resources to produce/provide and has an opportunity cost.
Free goods
Goods that require no resources to produce/provide and has no opportunity cost.
Factors of production
The resources used in the production and provision of goods and services.
The 4 factors of production
Land, labour, capital and enterprise.
Land
‘Gifts of nature’ (natural resources) available for use in the production and provision of goods and services.
Labour
Human effort used in the production and provision of goods and services.
Capital (goods)
Man-made goods used in the production and provision of goods and services.
Enterprise
Risk bearing and key decision making in business.
Consumer goods
Goods used to provide satisfaction to their owners.
Capital/producer goods
Goods wanted for what they can produce.
Occupational mobility
Capability of changing use.
Geographical mobility
Capability of changing location.
Mobility of labour
The ability of labour to change where it works or in which occupation it works in.
Factors affecting mobility of labour
Differences in price and availability of housing in different locations, family ties, differences in education systems in different locations, lack of information, restrictions of labour’s occupational mobility, etc.
Mobility of capital
The ability of capital to change where it is used or in which occupation it is used.
Mobility of enterprise
The ability of enterprise to change where it is used or in which occupation it is used.
Factors affecting quantity of land
Land reclamation, soil erosion, the usage, destruction, and replenishment of natural resources.
Factors affecting quality of land
Usage of fertiliser, pollution levels, irrigation, climate factors, soil mineral content.
Factors affecting quantity of labour
Size of labour force (affected by size of population, age structure, retirement age, school leaving age, attitude towards working women, unemployment rate, etc) and and working hours (affected by length of average working day, whether workers work full or part time, duration of overtime, holiday length and frequency, and time loss due to illness, etc).
Factors affecting quality of labour
Education, training, experience, healthcare, incentives, etc.
Depreciation
The value of capital goods that have worn out of become obsolete.
Factors affecting quantity of capital
Investment, depreciation.
Factors affecting quality of capital
Technological advancement, depreciation, investment.
Gross investment
Total spending on capital goods.
Net investment
Gross investment minus depreciation.
Negitive net investment
A reduction in the number of capital goods caused by worn out capital goods not being replaced or them becoming obsolete.
Factors affecting quantity of enterprise
Education, taxes on firm’s profits, changes in government regulation, safety of creating a new firm, investment rates.
Factors affecting quality of enterprise
Education, training, healthcare, experience.
Payments/rewards for land
Rent.
Payments/rewards for land
Rent.
Payments /rewards for labour
Wages.
Payments /rewards for capital
Interest.
Payments /rewards for enterprise
Profit.
Production possibility curve
A curve that shows the maximum output of 2 types of products that can be produced with existing resources and technology within an economy.
Production points
A point that show what is being produced or what may be produced in the future.
Movements along a PPC
Shows the reallocation of resources.
Shifts in a PPC
Changes in the quantity or quality of resources within an economy increasing the maximum output.
