The Basic Economic Problem Flashcards
Define the economic problem
A situation that arises as a result of the existence of finite resources and unlimited wants.
Choices have to be made
What is the economic problem in the context of a worker?
Working longer hours to earn more money but having to make the sacrifice of giving up leisure time. 33
What is the economic problem in the context of governments?
They have limited amounts of money to spend on essential services, so spending more on one will lead to a reduction in spending on other services.
E.g education and healthcare.
What are economic goods?
A good that requires resources to produce it and has an opportunity cost.
It is scarce relative to the demand for it so a price is charged for the good.
What are free goods?
A good that requires no resources to produce it, so has no opportunity cost.
It is not scarce relative to the demand for it so no price is charged for it.
One person can enjoy this good without stopping others from enjoying it too.
Differences between economic and free goods.
Economic:
Scarce relative to their demand
Using them involves making a sacrifice
Free:
Abundant
Does not involve a sacrifice
Define land with examples and state its reward
Land; the natural resources used in the production process.
Water and coal
Reward —> rent
Define labour with examples and state its reward
The human resources used in the production process, referring to both physical and mental work.
E.g coal miners and accountants
Reward -> wages and salaries.
Salaries are annual and wages are hourly, daily or weekly.
Define capital with examples and state its reward.
The human made resources used in the production process.
E.g machinery and building
Reward -> interest.
Define with examples enterprise and state its reward.
It is the coordination of the other factors of production involving the taking of risks.
Reward -> proit
Explain how the extent to which various factors of production will be influenced by the availability of funds, government initiatives and the availability of educational, training and networking provisions.
Define opportunity cost
The next best alternative that is given up when a decision is made.
That sacrifice that is made as a result of making a choice.
What is a PPC?
A curve that shows the maximum output of two goods/services and the maximum combination of those products that can be produced with existing/given resources and technology
What does a point under the PPC signify.
There are unemployed resources and/or they are used inefficiently.
What does a point on the PPC signify?
All resources are being used efficiently.
