The basic economic problem Flashcards
What is meant by basic needs or needs?
Basic needs / needs are goods and services that are essential for survival.
Give 4 examples of needs.
Water, food, shelter, clothing
What is meant by wants?
Wants are goods and services that are not essential for survival.
Give 4 examples of wants.
Cars, holiday trips, headphones, accessories
What are resources used for?
Resources are used to produce goods and services to satisfy needs and wants.
Give 2 examples for natural resources, human resources and manufactured resources.
Natural resources : wood, land, soil, timber
Human resources : farm workers, factory manager, carpenter
Manufactured resources : Robots, factory machinery, tractors
Define finite resources.
Finite resources are non-renewable resources that will eventually run out.
Define renewable resources.
Renewable resources are resources that can be replaced as they are used to produce goods and services.
What is unlimited wants?
Unlimited wants is that there is always something else that people would like and it could never be satisfied.
What is the economic problem?
The economic problem is how can scarce economic resources be used effectively to satisfy people’s unlimited needs and wants.
Define scarcity.
Scarcity is the lack of goods and services available to satisfy unlimited wants.
Limited resources and unlimited wants leads to choices having to be made. Who has to make these choices?
Consumer, producer, government, worker
Describe the economic problem.
Economic problem is because of humans having unlimited wants that cannot be fully met due to limited resources which leads to scarcity, and so choices having to be made.
What are economic goods?
Economic goods are goods which are scarce relative to the demand for them.
what are free goods?
Free goods are resources that are supplied at zero cost because there are more than enough available to satisfy the demand.
Give 2 examples of free goods.
Sand, air, pebble
Define the four factors of production. Give examples.
Land : natural resources (milk, wheat, wood, cotton, timber, cocoa, coal, metal)
Labour : human resources (carpenter, factory workers, office workers)
Capital : manufactured resources (machinery, equipment, payment, buildings)
Enterprise : brings all the other factors together to produce a good or service.
What is the payment made to the owner for the use of land as part of the production process is called?
Rent paid.
What are the rewards for the work carried out as part of the production process?
The payment of wages.
What is the payment made for borrowing money to buy capital called?
Interest.
Who carried enterprise and what is the rewards gained called?
Enterprise is carried out by an entrepreneur and the rewards gained by the entrepreneur is profit.
What is meant by mobility of factors of production?
Mobility of factors of production implies how easy it is for factors of production to be transferred to alternative industry.
Describe the mobility of land, labour, capital and enterprise.
Land : can often be adapted for other uses
Labour : workers can be trained to carry out other jobs
Capital : might be difficult to move to an alternative use (especially ones that carry out a particular function). The more specific the capital, the less mobile it is.
Enterprise : can be moved to alternative industries if the entrepreneur has some knowledge of the alternative industry.
Describe how economic resources can be increased in quantity.
If there are more economic resources, then the economy can produce more output.
More labour : due to increase of population / immigration
More land : an increase in natural resources such as the discovery of more oil or petrol
More capital : due to business purchasing more machinery or equipment
Describe how can the quality of resources be improved.
•Land can be more productive by using fertilisers to increase the output from farming land.
•Education and training improve the quality of labour and increase productivity
•Improvements in technology increase the quality of capital
•Entrepreneurs can become more skilled through education to manage other factors of production more efficiently.
What cause an increase in output and economic growth?
An increase in output and economic growth is usually because there are more factors of production available for the production of goods and services or the quality of the factors of production has been improved.
What is meant by public sector?
It is a part of an economy which is controlled or owned by the government.
Define opportunity cost.
Opportunity cost is the next best alternative
foregone when making an economic decision.
Give examples of opportunity cost for consumers, producers, workers and government.
Consumers : opportunity cost for choosing to buy a new phone is spending the money for a short vacation.
Producers : opportunity cost for buying a new oven is investing in more advertisement.
workers : opportunity cost for working overtime is spending time with friends.
government : opportunity cost for building a new police station is having new motorways.
How does opportunity cost influence decision making?
Opportunity cost can be useful to calculate the benefits and downsides of each choice.
What is meant by a production possibility curve (PPC) ?
Production possibility curve (ppc) shows the maximum possible output for two goods or services with a given amount of resources.
What does a curved ppc line means?
Inconsistent opportunity cost / increasing opportunity cost
What does a straight ppc line means?
Constant opportunity cost.
Why does the ppc shows opportunity cost?
To show the choices made in an economy about what to produce and to weigh up choices and their opportunity costs.
What does a position on the ppc means?
Indicates all resources are being used efficiently.
What does a position inside the ppc means?
There are unemployed resources or an inefficient use of resources.
What does a position beyond the ppc means?
It’s impossible to reach because the economy doesn’t have sufficient resources to produce the goods or services. There needs to be an increase in productivity from an increase in available resources or an increase in efficiency with the available resources.
What are some developments that could move the ppc to the right?
Additions to resources (more available labour from immigration) , training of labour (in the form of improvements to education), and improvements in technology (more efficient equipment)
The ppc curve can also move inwards to the left. What are some factors that could reduce the amount of resources available in an economy?
Face of destruction (earthquake, tsunami, war) or when labour migrates away to other countries.
