The basic economic problem Flashcards
What are the three fundamental questions of the basic economic problem?
1) What to produce with our limited resources? 2) How to produce it? 3) Who gets the output?
What is scarcity in economics?
Scarcity means there are not enough resources to produce all the goods and services that consumers want.
What causes scarcity?
Scarcity arises because human wants are unlimited, but the resources to produce goods and services are limited.
What is the difference between a need and a want?
Needs are essential for survival, such as food, water, and shelter, while wants are non-essential desires, such as luxury items.
What are scarce goods?
Scarce goods are economic goods that have a price because resources must be sacrificed to obtain them.
What are free goods?
Free goods are abundant and satisfy wants without a price, such as fresh air or seawater.
How is scarcity different from a shortage?
Scarcity refers to limited resources for unlimited wants, while a shortage occurs when demand exceeds supply at a given price.
What is opportunity cost?
Opportunity cost is the sacrifice of the next best alternative when a choice is made.
How does opportunity cost apply to consumers?
Consumers face opportunity cost when choosing to buy one product over another.
How does opportunity cost apply to producers?
Producers face opportunity cost when allocating resources to produce one good instead of another more profitable good.
How does opportunity cost apply to governments?
Governments face opportunity cost when allocating limited tax revenues to one service instead of another.
What are the four factors of production?
The four factors of production are land, labor, capital, and enterprise.
What does land refer to in the factors of production?
Land includes all natural resources, such as minerals, water, air, and sunlight.
What does labor refer to in the factors of production?
Labor includes human effort, both physical and mental, used to produce goods and services.
What does capital refer to in the factors of production?
Capital refers to man-made resources, such as machinery, tools, and buildings, used to produce goods and services.
