The Basic Economic Problem and Econmic Assumptions Flashcards
What Is Scarcity?
Scarcity describes the situation where people’s unlimited wants and needs always exceed the resources available to satisfy them
What is Choice?
Choice is deciding between alternative uses of scarce resources
What are Needs?
Needs are basic requirement for human survival
What are Wants?
Wants are desires that can be infinite and are not necessary for human survival
What is the Economic Problem
The Economic Problem is that wants are infinite and resources are scarce. So decisions have to be made about: What to produce, How to produce, For whom to produce
What is Opportunity Cost?
The Opportunity Cost is the next best alternative given up when making a decision
What is Equality and Equity?
Equality is treating everyone fairly
Equity is treating everyone the same
What are the Factors of Production?
Capital- Man-Made Resources used to make goods/services
Enterprise-Entrepreneurs who organise the other factors of production
Land-Natural Resources (below, on and above the ground)
Labour-Workers at any skill level
What are non renewable resources?
Non renewable resources are those whose stock levels decreases over time as it is consumed. Eg: Fossil Fuels
What are Renewable Resources?
Renewable resources are resources whose stock can be maintained over a period of time. Eg: Solar, Wind, Timber and Water
What are durable goods?
Durable goods are goods which satisfy wants over a longer of time
What is a PPC?
A PPC is a graph which shows the different combination of two goods an economy can produce if all resources are fully used, using current technology
What are Capital Goods?
Capital Goods are goods that are used to produce othe products.
What are Consumer Goods?
Consumer Goods are goods that are consumed by consumers for personal satisfaction.
What 2 things does a PPC assume?
If the Technology is new
That all the resources are used efficently
What would cause a PPC to shift inwards?
A fall in the fall in quantity (Not enough to make) or in the productivity (not making enough)
.Enviromental damage
.Emigration fall in labour
.Conflicts/Diseases fall in labour
What would cause a PPC graph to shift outwards?
An increase in the quantity or in the increase of the factors of production. .New tech .Immigration .Foreign direct investment .Training of workers
What are Assumptions?
Assumptions are things that you think are true although you don’t have definite proof
What is the definiton of Irrational?
Irrationality is not based on clear thought
What is the definiton of Rational?
Rational is based on clear thought and reasoning as you are trying to maximise benefit
What is the Revenue?
Price x Quantity
Why do some businesses not focus on maximising profit?
Computational Weakness-consumers are not always good at calculating the benefit of a good they are consuming?
Habitual Behaviour-consumers have habits that are difficult to give up
Herding-consumers copy others’ behaviour
Information gaps- sometimes consumers lack the information required to make a fully informed desicion
Charities
Social Enteprise-commercial firms which look to whose primary aim to support social good
