The Economic Problem Flashcards
Describe The Economic Problem.
The economic problem refers to the fact that there are limited amounts of resources available to satisfy the infinite needs and wants of individuals (resources are scarce).
As a result, how can the available scarce resources be used to satisfy people’s infinite needs and wants as affectively as possible?
Name the four factors of production.
Land
Capital
Labor
Enterprise
One of the four factors of production is ‘Land’.
Describe what is meant by Land, as one of the four factors of production.
Land refers to the Earth’s natural resources:
Non-renewable resources (oil, coal) Renewable sources (wind, tidal power) Materials extracted by mining (diamond, gold) Water Animals in the area
Nearly all the things that fall under the category of ‘land’ are scarce - there isn’t enough to satisfy the needs of everyone.
What is a free good?
A free good is a good that is not generally considered scarce, i.e. There’s enough for everyone to have as much as they want.
Free goods are called free goods because the feature of the good having no scarcity makes it impossible to sell as everyone is able to have as much as they want at any time.
One of the four factors of production is ‘Labor’.
Describe what is meant by Labor, as one of the four factors of production.
Labor is the work done by those people who contribute to the production process, which are part of the labor force.
What does the labor force refer to?
The term refers to the population who are available to do work.
In economics, an individual who is capable of working and is old enough to work (in the labor force) but doesn’t have a job is known as what?
Unemployed
One of the four factors of production is ‘Capital’.
Describe what is meant by Capital, as one of the four factors of production.
In economics, capital consists of human-created assets that can enhance one’s power to perform economically useful work.
One of the four factors of production is ‘Enterprise’.
Describe what is meant by Enterprise, as one of the four factors of production.
Enterprise refers to the people (entrepreneurs) who take risks to create things from other three factors of production.
They set up and run businesses using any of the factors of production available to them,
What is economic activity?
Economic activity is the combination of the factors of production in order to manufacture output for the purpose of consumption to satisfy needs and wants.
Give one form of economic activity.
One form of economic activity is the making of goods and the provision of services.
Another form of economic activity is consumption.
What is a good?
A good is a physical, tangible product you can touch, such as washing machines, books or a new factory
What is a service?
A service is an intangible, non-physical product which is bought and sold, such as a medical check-up or teaching.
Good or a service?
Apple
Good
Tangible, physical value - can be bought and sold, consumed.
Good or a service?
Architect
Service
You are paying for the skills of the individual - intangible.
List the 3 economic agents.
Producers
Consumers
Governments
One economic agent is a Producer.
What is a Producer?
A producer refers to a firm or person that makes goods or provides services.
One economic agent is a Consumer.
What is a Consumer?
A consumer refers to a firm or person that buys goods or services to satisfy a need or a want.
One economic agent is the Government.
What does the Government do?
The government sets the rules that other participants in the economy have to follow, but also produces and consumes goods and services.
Why is Economics a Social Science?
Economics is a Social Science as it looks into the behavior of humans, either as individuals or as part of an organization like a firm or government.
Why can’t economists conduct controlled laboratory experiments, like other natural sciences can do?
The reason why economists cannot conduct controlled laboratory experiments is because certain variables such as income are much harder to control and generally controlling certain variables makes experiment lose a lot of ecological validity, making it not as useful to conduct as the results of the experiment will not be representative or generalizable to the general population.
For example, when an economists examines the impact of prices on the demand for cheese, they can’t keep consumers’ income constant - in the real world, income won’t remain constant.
What is ceteris paribus?
Ceteris paribus is Latin for ‘all other things remaining equal’ - it is an assumption used in certain explanations to imply when all other things are remaining equal.
Economists use ceteris paribus when they’re looking at the relationship between two variables like price and demand. They’ll assume that only these two factors change and all other factors like income and natural changes in demand that would have an affect on any other variable being considered remains the same.
What does Ceteris Paribus allow economists to do?
ceteris paribus allows economists to make predictions and theories.
What is a positive statement?
Positive statements are objective statements that can be tested by referring to the available objective evidence.
‘A reduction in income will increase the amount of people shopping in pound shops’.
Positive, Normative or negative statement?
Positive.
This is because this statement can be objectively proven by suitable data collected over a period of time measuring the relationship between the two variables [income and amount of people shopping].
