The Basic Economic Problem Flashcards
Capital
Human-made resources including machinery, tools and factory buildings, used in the production of other goods and services.
Entrpreneur
A person with enterprise is willing to take risks and decisions necessary to organize scarce resources into firms to produce goods and services.
Enterprise
Skills possessed by successful entrepreneurs: business know-how and the ability to organize productive activities.
Land
All natural resources used to produce other goods and services
Labour
Human effort used up in productive activities
The Economic Problem
Resources are scarce and human wants are infinite. There are not enough resources in the world to produce all the goods and services to satisfy all our needs and wants.
An increase in productive capacity
An outward shift in a PPC resulting from an increase in the quantity and/or quality of the resources available to an economy.
A decrease in productive capacity
An inward shift in a PPC resulting from a decrease in the quantity and/or quality of the resources available to an economy.
Production Possibility Curve (PPC)
The PPC shows all the possible combinations of two goods that an economy is able to produce with its existing resources and technology if they are fully and efficiently used.
Opportunity cost
The benefit that is foregone from choosing one use of scarce resources over the next best alternative use of those same resources.
Inefficient allocation of resources
Occurs when factor resources are not fully or effectively used in an economy. Production will be at a point below the PPC. More output could be produced if existing resources were better utilised.
Occupational mobility
The ability to move or reallocate factors of production from one productive task to others.
Geographical mobility
The ability to move or reallocate factors of production from one location to another.
Economic goods
Goods produced to satisfy consumer needs or wants. There is an opportunity cost for producing economic goods.
Free goods
Goods that we may need or want that are unlimited in supply and do not incur any opportunity cost when produced.
