MICRO - Factors of Production Flashcards
(19 cards)
What are the factors of production?
Land, labour, capital, enterprise.
What is the basic economic problem?
The challenge of allocating scarce recourses to satisfy unlimited needs and wants.
What does land mean in economics?
All natural recourses like oil, water and trees. reward - rent
What does labour mean?
Human work that contributes to production. Reward - wages
What does capital mean?
Machines and tools used in production.
reward - interest
What does enterprise mean?
entrepreneurs take risks to create businesses. reward - profit.
What is opportunity cost?
The thing you give up when you make a choice.
What are free goods?
Goods that are unlimited and have no opportunity cost. (air, water, sunlight)
What are economic goods?
Goods that are limited and involve opportunity cost.
What is a PPF?
A production possibility frontier - a graph showing maximum possible output given resources.
What does a point inside the PPF mean?
Recourses are wasted meaning production is inefficient.
What does a point outside the PPF mean?
Not achievable with current resources.
What shifts a PPF outward?
Better resources, technology, or more labour.
What is a trade-off?
When choosing one thing you loose out on another.
What is allocative efficiency?
When resources are used to match consumer preferences.
What is pareto efficiency?
When no one can be made better off without making someone worse off.
What does diminishing returns mean in a PPF?
Increasing production of one good means bigger losses in another.
What happens if production is inefficient?
Unemployed resources—not all labour or capital is used.
What causes a PPF to shift?
More resources, better education, better technology.
