Unit 1 - 1.2 Three basic economic questions Flashcards
What/how much to produce
as resources are limited in supply, decisions carry an opportunity cost. Which goods/services should be produced e.g. better rail services or more public hospitals?
How to produce
Would it be better for the economy to have labour-intensive production so that more people are employed, or should goods/services be produced using machinery?
For whom to produce
Should goods/services only be made available to those who can afford them, or should they be freely available to all?
Resource allocation
Assigning available resources or factors production to specific uses, chosen among many possible alternatives. Involves answering the what/how much to produce adn the how to produce questions.
Distribution of income
Redistribution of income
Government intervention
Free market Economey
An economy where the means of production are privately held by individuals and firms. Demand and supply (market forces) determine what/how much to produce, how to produce and for whom to produce.
Planned Economy
Hudson to check
An economy where all the resources are owned by teh state and the government controls the distribution of goods/se
Mixed Economy
a blend of free market and planned economy as individuals, firms and the government own factors of production and distribute services/goods.
Rationing
An artificial control on the distribution of scarce resources.
Model
a simplified version of reality
PPC
is an economic model that considers the maximum possible production (output) that a country can generate if it uses all of its factors of production to produce only two goods/services
What are the three important economic questions?
Capital goods
are assets that help a firm or nation to produce output (manufacturing). For example, a robotic arm in a car manufacturing company is a capital good
