Chapter 2 - The Economic Problem Flashcards
(11 cards)
What is the basic economic problem?
The basic economic problem is scarcity — resources are limited while wants are unlimited.
What is scarcity?
Scarcity refers to the limited availability of resources compared to unlimited human wants.
What is opportunity cost?
Opportunity cost is the next best alternative forgone when a choice is made. Or the benefit lost from the next best alternative.
What is a free good?
A free good is abundant, has no opportunity cost, and is not scarce (e.g., air).
What is an economic good?
An economic good is scarce, has opportunity cost, and is produced using resources.
What are the three basic economic questions?
(1) What to produce? (2) How to produce? (3) For whom to produce?
What are the four factors of production?
Land, Labour, Capital, and Enterprise.
What is meant by ‘Land’ as a factor of production?
Land includes all natural resources used in production.
Reward - Rent, Lease, royalty, payment.
What is ‘Labour’?
Labour is the human effort used in the production of goods and services.
Reward - wages.
What is ‘Capital’?
Capital refers to man-made resources used in production (e.g., machinery, tools).
Reward - rent or profits.
What is Enterprise?
The one who takes risks and manages the other 3 factors to produce goods.
Reward - profits.
