Unit the basic economic problem Flashcards
Want
Is something we desire to have eg pet
Need
Is the basics of survival eg shelter
Factors of production
Land - raw materials eg oil
Labour - work force eg workers
Capillaries - machinery eg tolls
Enterprise - enetprenuer who brings all factors of production together
Good
Items we can finically touch
Service
Something that is provided eg education
Are factors of production limited
Yes
Oppertunity cost
Is the next best alternivite choice
Eg you go yo the shops you can either buy a twin or a mars bar, if you chose the twix the Oppertunity cost is the mars bar
Oppertunity cost induviduals, firms and government
Induviduals - mxamixe untility - limited income - decide what to spend limited incom to maximize utility
Firms - maximize profit - limited factors of production - produce in oder to maxmize profit
Government - maximize people welfare - limited revenue - decide what goos and services to provide to maximize welfare
The basic economic probelm
The basic economic problem is scarcity
Wants are unlimited whereas the factors to make theses resources are limited
This is why no one in the world can have all the goods and service they easier
This means everyone has to make choices to maximize utility
Wages
A fixed regular payment earned for work or sevice
Salaries
Fixed regular payment
State benifits
Sum of money paid by the government of people in certain circumstances
Tax credits
Payment for people earning low incomes
Pensions
Tax-free savings for retirment
Investments
Spending on capital goods
Disposable income
Incomeleft agfter taxes have been deducted
Discreattionary income
Income left over after taxes and essential bills
Why do induviduals save
Emergency funds Treating yourself e;g handbag Financial protection Reterirment Future spending
Ways to save
Cash ISA- tax-free savings
Instant access savings - can make withdrawals anytime - access at any time
Why do people borrow
To buy assets eg car
To cover unexpected hours repairs wig boiler
Day to day expensive
Ways to borrow
Mortgage - loan to half you buy property
Credit card
Bank loan
Payday money lenders - small amounts of money which is loaned
Budgeting
A forward fincail of likely income and expenses for a given period
Causes of financial uncertainly
Change in prices/ rate of inflation - can only buy basics
Change in tax - less disposible income
Change in interest rates - people borrowing need to pay more
- people encouraged to save more
Demand
How willing and able a purchaser is to buy a product
Effective demand
Actual amount of goods and services that buyers are producing in the market
Why does the demand curve slope downwards
The law of diminishing marginal utility
The substitution effect
Income effect
Untility
The amount of satisfaction gained form consuming products
Total utilty
Total satafsction gained for consumer good and services
Diminishing marginal utility
As a consumer cosumes an extra unit the stasfaction gained decreases
Subsituation effect
As prices rise a consumer will emend less of a product
Income effect
As prices of a good rise consumers in some can buy less units of any product
Factors affecting demand curves
Population Advertising Fashion and trends Incomes Price of substitute goods and services
Supply
Amount of goods and services that producers are willing to sell at a given price
What does a supply curve slope
The profit motive
Production and costs
New entrants coming into the market
The profit motive
When the market prices rises following an increase in demand, this becomes more profitable for firms to increase output
Production and costs
When output expands, a firms production costs tend to rise, therefore a higher price is needed to cover theses costs
New erants coming into the market
Higher prices may create an incentive for other businesses to enter the market leading to an increase in total supply
Effect of prices on supply
Increase price - firms can make more profit by supplying more
Decrease - the firm makes less frofit causing supply to contract
Shifts in the supply curve
Productivity Technology Weather Cost of production Number of firms
Productivity
the amount produces per unit time
Market
Where buyers and sellers of a good or service come together to exchange their good or services for a price
Returns to the factors of production
Land - rent
Labour - wages
Capital - interest
Enterprise - profit
Short run
At leat one of the factors is fixed and can’t be expended
Long run
All the factors of production can be varied
Variable costs
Costs that change with level of Output
Eg raw materials
Fixed costs
Costs that don’t change with the level of output eg rent
Average fixed costs
Fixed costs per unit produced
Average variable costs
Variable cost per unit produced
Average total costs
Cost per unit
Total revenue
Income received by selling items
