Section 1: The Basic Economic Problem - Nature of the Basic Economic Problem Flashcards
What is economics?
Economics is the study of how resources are allocated to satisfy the unlimited needs and wants of people {individuals, governments, firms} in an economy.
Define the Basic Economic Problem.
The basic economic problem is concerned with how best to allocate scarce resources to satisfy people’s unlimited needs and wants.
State the four economic agents.
- Firms
- Governments
- Workers
- Consumers
What are the three questions addressed by economic agents?
- What to produce?
- How to produce?
- For whom to produce?
Define the private sector.
The private sector refers to the economic activities of private individuals and firms, with no government involvement.
Define the public sector.
The public sector refers to economic activity directly involving the government, with the main aim being to provide essential services.
Examples of public sector activity: education healthcare services
Define goods.
Goods are physical and tangible items that can be produced, bought and sold.
Examples:
books, tables, food
Define services.
Services are non-physical items that can be provided by firms and paid for by customers.
What are needs?
Needs are goods and services that are essential for survival.
What are wants?
Wants are goods and services that are not necessary for survival but are human desires.
What are Free Goods?
Free Goods are goods which are unlimited in supply and thus have no opportunity cost in their production or consumption.
- Human effort is not required to obtain these.
Examples:
air
seawater
What are Economic Goods?
Economic Goods are goods which are limited in supply.
- Human effort is required to obtain these and there is competition to acquire them.
- These are scarce in relation to their demand.
Examples:
oil
clothing
