The Economic Problem (1.3) Flashcards
What creates the economic problem of scarcity?
When people have unlimited wants but there are not enough resources to supply these wants.
What is the purpose of economic activity?
To produce goods and services to satisfy the needs and wants of society.
What does economic activity improve?
-Economic welfare, which is the benefit gained by individuals, firms or society in the production of goods and services.
What are needs?
-Things required that are essential to maintain survival.
What are wants?
-Wants are things that are desired but not essential to survival.
What 3 basic questions does the economic problem try to answer?
- What to produce
- How to produce
- Who to produce for
What are renewable resources?
Ones that can be replenished.
What are non-renewable resources?
Ones that are infinite resources and therefore will never run out.
What is opportunity cost?
-Benefit loss of choosing the next best alternative when making a choice.
What are trade-offs?
-Any situation where making one choice means losing something else. Usually referred to when there are a range of alternatives in opportunity cost.
What is the importance of opportunity cost to economic agents?
- Economic incentives provide economic agents with information required to tell them what goods and services to produce
- Firms will combine factors of production in order to produce a good or service
- In a free market economy they produce according to demand and supply
What are economic agents?
-Individuals, firms and governments that partake in economic activity.
What is a free market economy?
-One where firms decide what goods and services to produce with limited intervention from the government
