The Economic Problem Flashcards
What is the economic problem?
Its that there are unlimited wants for goods and services but there are only scarce resources to make them - how do we allocated the scarce resources?
What is an economic system?
System for allocating scarse resources. When there are competing needs and wants of society, yet limited amount of resources, choices must be made about how to allocate scarce resources efficiently
What are wants? Give examples
peoples desires for goods and services but is not a necessity for survival. eg better house, bigger car, improved health care, holidays. These wants are unlimited or infinite. People always want - more it is human nature.
What are needs? Give examples
Basic requirements for human survival. eg water, food, warmth, shelter, clothing
What are the 3 key questions for reducing the economic problem?
1-what should be produced ?(should resources be used for machinery, consumer goods, or weapons)
2-how should it be produced? (using latest tech or skilled craftsmen)
3-Whom should it be produced for? (should goods and services be allocated to those with most money or those with special needs)
What are scarce resources ?
amount of resources available when supply is limited
What is a free good?
A product that requires no resources to make
What is scarcity?
when something is desirable and limited in supply
What are the 4 main factors of production?
Land, Labour Capital, Enterprise
Land
The natural resources required in the production process eg space, wheat, metals
Labour
The human resources requiried in the production process eg skills and effort eg Education, workforce of people
Capital
The man made resources used for production eg tools, machinery , factories, devices.
Enterprise
Skills a business person required to combine the other three factors of production and ability to take risk eg creator of a school, microsoft, large scale business owners
how does the government get money
tax
How do you calculate profit
revenue - cost
What is meant by economic sustainability?
The best use of resources in order to create responsible growth, now and into the future
What is meant by social sustainability?
it considers how an economic choice affects a communities quality of life and well being.
what are consumer goods?
goods purchased by households eg cars, food, furniture
what are capital goods?
goods purchased by firms and used to produce other goods eg factory machinery, tools, equipment
What is a Production Possibility curve?
line that shows the different combinations of two goods an economy can produce if all resources are used up
On a PPC, explain the following points on the curve
a. Above the curve
b. On the curve
c. Below the curve
a. An output that is not yet attainable
b. An output where resources are being used efficiently
c. An output where resources are being used inefficiently
What does a straight, rather than a curved line on a PPC show?
That the costs between changing between one good and another is constant
What would cause an outward shift in a ppc curve?
- inflation
- income
-expansion
-fashion and taste
-loans
what are causes of positive economic growth
- New technology eg AI
-Improved efficiency eg better machinery
-Education and training eg university
-New resources
what are causes of negative economic growth
-resource depletion eg deforestation, over use fossil fuels, over fishing
-weather impact eg droughts, floods
-Emmigration
-Wars or natural disasters
How to calculate revenue
revenue = price x quantity sold
How do you maximise profit
-minimise costs
-maximise sales
-maximise prices
Rational assumptions
- maximise benefts
-cheapest price
-satisfy needs and wants
-quality
Irrational assumptions
-unaware of hidden perks
-brand
-influences
what are goods?
Goods are things that are produced in order to be sold
What does finite mean? give example of finite resources
having and end or a limit
eg fossil fuels - oil, natural gas, coal, and nuclear energy.
what is fertile soil
ground that is capable of producing crops
What does infinite mean?
without limites
what does distribution mean?
act of sharing things among a large group of people in a planned way
what does opportunity cost mean?
Resources often have an. umber of alternative uses. Individuals, firms and governments have to make a choice how to use the scarce resources. Once the choice is made there is also a sacrifice. This is is the opportunity cost (the next best alternative given up when making a choice).
eg government has to make a choice on how to spend eg new motorway or new hospital
what does sacrifice mean?
something valuable that you decide not to have in order to get something that is more important
what does expenditure mean?
spending by government
what does eliminate mean?
to get rid of something unnnecessary or unwanted
what does economic growth mean?
increase in the level output by a nation
