Unit 1 - The basic economic problem Flashcards
What is the basic economic problem?
The issue of what, how and whom production should take place such as how to allocate scarce resources due to unlimited wanted and limited resources.
What are the economic agents?
Households, firms and the government
What are economic goods?
Resources and products that are limited in supply
What are free goods?
Resources and products that are unlimited in supply
What’s the difference between a want and a need?
A need is a good or service that’s essential/crucial for survival and a want is a good or service that are not necessary for survival.
What’s the difference between the private and public sector?
The public sector is a part of the economy where the government produces goods or services when the private sector is a part of the economy where the private firm and individuals produce the goods or services.
What is a good?
Physical items that are made in the production process, e.g. cars, toothpaste and pencils
What is a service?
Non-physical products, e.g. haircuts, bus rides, telephone calls and internet access.
What is the nature of the economic problem?
- Scarce resources
- Resource allocation
3.Unlimited wants
How do firms make choices about how resources are allocated?
By asking the following questions:
1. What to produce
2. How to produce
3. For whom to produce
Chapter 2 - Factors of production
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What are the factors of production?
Capital - the manufactured resources required in the production process, e.g. machinery, tools and vehicles
Enterprise - The skills a business person requires to successfully combine and manage the other three factors of production.
Land - The natural resources required in the production process, e.g. oil, coal and water
Labour - The human resources required in the production process, e.g. staff, skilled and unskilled
What does “Ceteris paribus” mean?
It’s a Latin phrase commonly used in economics which means that all other things remaining equal
Define factors of production
The resources required to produce a good or service, i.e. land, labor, capital, etc.
What is geographical mobility?
The extent to which labour is willing and able to move to different locations for employment purposes
What is occupational mobility?
The extent to which labour is able to move between jobs. Retraining and upskilling workers helps to improve occupational mobility
What are the rewards to the factors of production?
Rewards:
Capital - Interest
Enterprise - Profit
Land - Rent
Labour - Wages and salaries
Define capital goods
Capital goods are fixed assets which are used in the productive process in order to produce a finished consumer good.
State the importance of Capital goods
Capital goods are important for increasing the long-term productive capacity of the economy. More capital goods reduce consumption in the short-term, but can lead to higher living standards in the economy. Therefore, economies often face a trade-off between consumer goods and capital goods.
Define consumer goods
Consumer goods are items ready for sale and bought for final consumption.
Who are decision makers
Individuals or organizations that make economic choices, i.e. consumers, workers, and producers
What is the government
The central authority of a country, responsible for the social, political and economic wellbeing of it’s people
