The Economic Problem Flashcards
What is economics about?
How to best satisfy infinite desires using limited resources
What is the economic problem?
There are unlimited needs/wants, but limited resources to satisfy people’ desires
What are the resources in economics?
Factors of production
What is the acronym for the factors of production?
CELL
What are the 4 factors of production?
Land
Labour
Capital
Enterprise
What is the purpose of the factors of production?
Combined to make g + s
What is land? It’s reward?
Natural space available for production
Includes all natural resources non-renewable + renewable resources (oil, natural gas) extraction of raw materials (diamond, gold), water + animals found in area
Reward = rent
What is a free good?
A resource that is enough for everyone, almost impossible to buy e.g. air
What is labour? It’s reward?
Human resources, workers that produce g/s
Quality of labour depends on education, experience + training
Reward = wage
What is capital? It’s reward?
Man-made aids to production
E.g., machinery, tractors, factories etc
Reward = interest
What is enterprise? It’s reward?
Willingness of entrepreneurs to take a risk to make a profit
Set up business/innovate with use of FOP, make loss/profit
Reward = profit
What is economic activity?
Involvement of combining the FOP to create goods that people can consume
What is the purpose of economic activity?
Increase people’s economic welfare by creating g+s that satisfy their various needs+wants
What is a good?
‘Physical’ products you can touch e.g. books
What is a service?
‘intangible’ things e.g. medical checkups/training
Why is choice important in an economy?
So that resources are allocated efficiently
What are main 3 economic question?
What to produce? - consumer demand
How to produce it? - most cost-effective + minimises use of scarce resources
Who to produce it for? - those that can afford/gov
Who are the economic agents?
Households/consumers
Firms/producers
Government
Who are the economic agents?
Households/consumers
Firms/producers
Government
What is meant by a producer?
Firms or people that make/provide g+s
What is meant by a consumer?
People or firms who buy the g+s
What is the government?
Institutions that sets the rules that other participants in the economy have to follow
They also produce/consume g+s
What decisions do producers make?
What to make + price they are willing to sell for?
What decisions do consumers make?
What to buy + price they are willing to pay?
What decisions does the government make?
How much to intervene in the way producers + consumers act
Why are all the economic agents assumed to be rational in a market economy?
They make decisions in their self interest, due to their economic incentives e.g. producers incentive this to maximise profits
What is opportunity cost?
The cost of the next best alternative forgone when a choice is made
What is a good choice using the concept of opportunity cost?
If value of current choice is greater than value of opportunity cost
