Section 1- The basic economic problem Flashcards
Define Resources
Factors used to produce goods & services
Define Free good
A product which does not require resources to produce it and therefore has no opportunity cost
Define Opportunity Cost
The best alternative forgone
Define Economic Problem
Unlimited wants exceeding finite resources
Define Scarcity
A situation where there is not enough resources to satisfy everyone’s wants
Explain why wind coming in from the sea is a free good (4)
- Does not need resources to be produced (already available)
- No opportunity cost
Define Economic good
A product which requires resources to produce it and therefore has an opportunity cost
An example of the economic problem in the context of:
- Consumers
- Workers
- Government
- One does not have the income to buy every car
- One can not do every job (supply of time)
- Spending the tax revenue (Eg. Building schools, hospitals)
Identify the 4 factors of production
- Land
- Labour
- Capital
- Enterprise
Land
The gifts of nature available for production
Labour
The human effort used in producing goods and services
Capital/ Producer goods
Human-made goods used in production
Human Capital
The education, training and experience the workers have gained
Capital goods
Not wanted for their own sake, but for what they produce
Consumer goods
Goods and services purchased by households for their own satisfaction
Enterprise
The willingness and ability to bear uncertain risks and make key decisions in a business
Occupationally mobile
Geographically immobile
Capable of changing use
Incapable of moving from one location to another location
Causes for labour being geographically immobile
- High prices and unavailability of housing
- Family ties
- Differences in educational systems
- Lack of information (unaware of job opportunities)
- Restrictions on movement ( work visa)
Causes of labour being occupationally immobile
- Lack of information about vacancies in other types of jobs
- Lack of appropriate skills and qualifications
Define mobility of enterprise
The ability to change where enterprise is used or in which occupation
Most mobile FOP? Why?
Enterprise-
The mobility of enterprises depends on the mobility of entrepreneurs
The skills involved in being an entrepreneur can be applied in every industry.
Someone who has been successful in starting up and running a business in one country is likely to be successful in another country also
Quantity of labour is influenced by which 2 factors?
- Number of workers
- Number of hours for which they work
Reasons for an increase in quantity of labour
- Increase in size of population
- Higher proportion of people of working age
- Higher retirement age
- Reducing the school leaving age
- Positive attitude to working women
Labour force/ Workforce/ Working Population
People in work and those actively seeking work
The number of hours which people work is influenced by:
- Length of the average working day
- Whether they work full or part-time
- The duration of overtime
- Length of holidays
- Amount of time lost through sickness and illness
Define
- Output
- Productivity
- Labour Productivity
- Goods and services produced by the FOPs
- Output per FOP in an hour
- Output per worker in an hour
Reasons for an increase in quality of labour:
- Better education
- Better training
- More experience
- Better healthcare
Define
- Investment
- Gross investment
- Spending on capital goods
- Total spending on capital goods
Define depreciation/ capital consumption
The value of capital goods that have worn out or become obsolete
If a country produces $200 million capital goods one year and there is depreciation of $70 million, what is the net investment?
$130 million
How can net investment be negative?
When the capital goods taken out of use are not replaced. The gross investment will be less than depreciation.
Reasons for an increase in quantity of enterprise
- Good education system including degrees in economics and business studies which increases the number of entrepreneurs
- Lower taxes on firms’ profits
- Reduction in government regulations
Payments for the FOPS
- Capital- Interest
- Land- Rent
- Labour- Wages
- Enterprise (entrepreuners) - Profits
What do consumers seek?
High quality
Low prices
What do workers seek?
High wages, good working conditions, good chances of getting promoted, job satisfaction
What do producers seek when determining what to produce?
Maximum profit
Opportunity cost for the government
Spending the tax revenue
- It could raise tax revenue, therefore the opportunity cost will be for the taxpayers as they’re giving up money they could’ve spent on something else
What causes a shift to the right on a PPC?
Increase in quantity and quality of FOPS
Potential Economic growth
Actual Economic growth
Potential is when the PPC diagram shifts to the right
Actual is when the output also increases along with the shift
Analyse how a PPC illustrates scarcity, O.C and efficiency.
Scarcity- When your production point is outside of the curve, there is a scarcity of resources
O.C- When there’s movement on the diagram
Efficiency- When the point is on the curve
