Topic 1: The Basic Economic Problem Flashcards
Define Scarcity
Scarcity is the basic economic problem where limited resources cannot satisfy unlimited wants
Difference between economic goods and free goods
Free goods: Goods that are abundant, have no opportunity cost, e.g sunlight and air
Economic goods: Goods that are scarce and involve an opportunity cost, e.g houses, cars as well as raw materials such as iron, wood etc
List the Four Factors of Production
Capital, Enterprise, Land, Labour
Define Factor of Production: Land (Including reward)
Natural resources, Reward: Rent
Define Factor of Production: Labour (Including reward)
Human Effort, Reward: Wages or salaries
Define Factor of Production: Capital (Including reward)
Man-made resources e.g. tools, machines. Reward: Interest
Define Factor of Production: Enterprise (Including reward)
Risk taking, organises other factors of production e.g entrepreneur. Reward: Profit
What affects the Quality and/or Quantity of a factor of production: Land
Discoveries of new resources(positive effect) or land degradation (negative effect)
What affects the Quality and/or Quantity of a factor of production: Labour
Education, training, and health of workers
What affects the Quality and/or Quantity of a factor of production: Capital
Investment in new technology (positive) or depreciation of old capital (negative)
What affects the Quality and/or Quantity of a factor of production: Enterprise
Education, innovation, government policies promoting entrepreneurship
Define Opportunity Cost
The loss of the next best alternative when making a decision
How does Opportunity Cost affect: Consumers
Choosing between goods/services based on budget constraints
How does Opportunity Cost affect: Producers
Allocating resources to maximise profit (e.g investments)
How does Opportunity Cost affect: Governments
Prioritising public spending (e.g investing in health care rather than of defense)
