The Basic Economic Problem Flashcards
What choices have to be made?
What goods and services to produce/buy?
How we should produce these goods and services?
Who should receive the goods and services we produce?
What is scarcity?
Scarcity means that all societies have limited resources but human wants are unlimited, therefore, individuals and forms and governments have to make choices about which goods and services they consume.
How does scarcity exist?
Scarcity exists because all societies have limited resources whilst human wants are unlimited, therefore economic agents have to make choices about how to allocate their scarce resources between alternative uses.
What is the basic economic problem?
Economics study the problem of scarcity and how individuals and societies as a whole attempt to minimise the problem by making choices.
What are economic goods?
Free goods are good which are scarce.
Their consumption has an opportunity cost.
People are willing to pay for them. E.g. Healthcare & doctors.
What are free goods?
Free goods are not normally regarded as being scarce.
Are abundant
Their consumption does not have an opportunity cost
e.g. oxygen.
What is opportunity cost?
The cost of a decision in terms of the benefits of the next best alternative forgone.
What are the four CELL factors of production?
Capital
Enterprise
Land
Labour
What is the factor production of land?
Natural resources of the earth. E.g. Fields, fish, etc.
What is the factor of production labour?
The human input into production.
What is the factor of production capital?
Goods which been made in order to produce some other good or service.
E.g. Machines
What is the factor of production enterprise?
The special human resource which is usually discussed separately from the labour resource. Brings together all the other factors of production to produce a product profitability.
What is the factor of production reward of Land?
Economic Rent - reward or return to land. Payment to a factor of production.
What is the factor of production reward of labour?
Wage/salaries - price paid to labour contribution to the productive process. Education + training increases it.
What is the factor of production reward of enterprise?
Dividends or Interest - return to enterprise.
