The basic economic problem Flashcards
Explain opportunity cost
Opportunity cost is the next best alternative forgone when a choice is made.
What is the difference between economic goods and free
goods.
An economic good has opportunity costs because it uses the factors of production in its production, but free goods don’t have any opportunity costs because they don’t use any factors of production in their production.
What is a factor of production?
The resources needed to produce the many goods and services that are made in all types of economy.
Define land
The natural resources used in the production process.
Define labour
The mental and physical human effort used in the production process.
Define capital
The human-mad resources used to aid production
Define enterprise
The risk bearing and key decision making ability used in the production process.
Reward for land
Rent
Reward for labour
Wages
Reward for enterprise
Profit
Reward for capital
Interest
Define mobility of the factors of production
It is the extent to which it is possible to change how or where a factor of production can be used.
Is land immobile or mobile?
Land is geographically immobile because a piece of land can’t move form one place to another, but it is occupationally mobile because a variety of economic activities can be done on land.
Factors of occupational mobility of labour
Occupational mobility is dependent on family ties, education and training received by the individual, and Means of Transport
What is a production possibilites curve (PPC)?
A curve that shows the maximum output of two types of products and the combination of those products that can be produced with existing resources and technology.
What does a point on the PPC signify?
The maximum level of the production of the two goods.
What does a point within the PPC signify?
Inefficient use of resources
What does a point outside the PPC signify?
An unattainable point, due to limited resources.
What does movement along a PPC mean?
The movement along a PPC from one point to another point indicates that more of one good is produced only by giving up production of the other good.
