The Basic Economic Problem Flashcards
Topic 1: Scarcity and Choice
What are economic goods?
Goods which benefit society, have the problem of scarcity and have an opportunity cost. Since they are scarce, they have some value, so consumers will pay
for them, and they can be traded.
What are free goods?
Goods which have no opportunity cost, because there is no scarcity of the good. For example, air and water are free goods. These goods are not traded because they are freely available.
What is the basic Economic problem?
Scarcity
Define scarcity
Scarcity is the shortage of resources in relation to human wants.
What is a positive statement?
Statements which are objective.
Can be backed up by factual evidence - can be accepted / rejected.
Look for words such as ‘will’ and ‘is’
What is a Normative statement?
Statements which require value judgements.
They are subjective and are based on opinions.
Look for words such as ‘should’ and statements suggesting one opinion is better than another.
What are the four Factors of Production?
Land
Labour
Capital
Enterprise
What is Capital?
Man-made physical aids to production e.g. machines, computers, buildings
What is Enterprise?
Someone who takes risks, innovates and uses the other factors of production.
What is Labour?
Human capital, which is the workforce of the economy.
What is Land?
Natural resources (/ the physical space used in production e.g. a filed)
What is the reward for Capital?
Interest from the investment
What is the reward for Enterprise?
Profit
What is the reward for Labour?
Wages
What is the reward for Land?
Rent
