The basic economic problem Flashcards
Define the economic problem, resources, and scarcity
The economic problem: unlimited wants exceeding finite resources.
Resources: factors used to produce goods and services.
scarcity: a situation where there is not enough to satisfy everyone’s wants
Differenciate economic and free goods
economic goods: a product which requires resources to produce and therefore has an opportunity cost. For example, a carpet or a car.
Free goods: a product that does not require any resources to make and so does not have an opportunity cost. for example, sunshine, or river water
Explain the factors of production
They are the economic resources of land, labour, capital, and enterprise.
Land: gifts of nature available for production.
labour: human effort used in producing goods and services. sometimes refered to as human capital, which means the education training, and experience workers have gained.
capital: human made good used in production
enterprise: risk bearing and key decision making in business. entrepreneurs organise the other factors of production. in large companies, both shareholders and managing directions perform the key tasks of enterpreneurs
Give reasonds for immobility of labour
1) differences in the price and availability of housing in different areas and countries. workers who lose their jobs in poor areas may not be able to take up jobs in rich areas as they can not afford housing there
2) family ties
3) differences in educational systems. people may not be willing to move somewhere if it disrupts their children’s education
4) lack of information. People without jobs, or in poorly paid jobs, may stat where they are because they are unaware of job oppurtunities elsewhere.
5) restrictions on the movement of workers. it is often necessary to obtain a work visa, which may be limited in suppy
occupational immobility: lack of appropriate skills and qualifications
Describe the quanity and quality of land
quantity: soil erosion reduces the supply of agricultural land. land reclamation increases its supply.
quality: fertilisers increase the fertility of land. the purity of rivers can be improved by stopping pollution. providing good drainage can increase the yield form fruit trees
What determines the quality and quantity of labour
quantity:
1) size of the population
2)the age structure of the opoulation
3) the retirement age
4) the school leaving age
5) attitudes towards women working
6) length of average working day
7) length of holidays taken by workers
quality: education, training, health
Define investment, depreciation, net investment, and negetive net investment
investment: spending on capital goods
depreciation (capital consumption): the value of capital goods that have worn out or become obsolete.
Net investment: the value of extra capital goods made. gross investment minus depreciation.
negetive net investment: a reduction in the number of capital goods caused by some goods becoming worn out or obsoloue but not replaces
What’s the difference between an bowed outwards ppc and a straight ppc.
a curved ppc shows an increasing opportunity cost while a straight ppc shows a constant opportunity cost
