TOPIC 1 Flashcards
What are economic goods?
Goods which are scarce and traded
What are free goods?
Goods which are not scarce and not traded
What is the economic problem?
How to best satisfy unlimited needs and wants with scarce resources
What is poverty?
The inability to buy necessities OR a low income relative to other citizens
What is a positive statement?
A statement which can be proven true or false (facts)
What is a normative statement?
A statement which cannot be proven true or false (opinion)
What are the factors of production and the reward for each factor?
Capital - interest
Enterprise - profit
Land - rent
Labour - wages
Can economic agents act rationally?
Consumers - sometimes buy things they don’t get full use out of as they have been influenced (gym membership)
Firms - don’t always profit maximise (charity events)
Government - act on imperfect information
What is a planned economy?
An economy where the government decides how to best allocate scarce resources
What is a market economy?
An economy where the market forces of supply and demand allocate scarce resources
What are the benefits of a market economy?
- firms are likely to be efficient
- personal freedom
What are the drawbacks of a market economy?
- ignores inequality
-could lead to monopolies - public goods are not provided
What are the benefits of a planned economy?
- easy to coordinate resources in a time of crisis
- Government can easily correct market failure
- reduced inequality
What are the drawbacks of a planned economy?
- limits personal freedom
- government could fail
What is allocative efficiency?
When resources have been allocated to the best interest of society
