Nature of Economics (Topic 1) Flashcards
(19 cards)
What is the economic problem?
Unlimited wants vs limited resources (scarcity)
Define ‘opportunity cost’.
Opportunity cost is the cost of the alternative foregone by present consumption or production decisions.
What are the two main types of goods produced?
- Consumer goods
- Capital goods
What is the difference between consumer goods and capital goods?
Consumer goods provide immediate satisfaction for wants, while capital goods are used to produce more goods and services in the future.
List the four factors of production.
- Land
- Labour
- Capital
- Enterprise
What is the factor of return for land?
Rent
What is the factor of return for labour?
Wages
What is the factor of return for capital?
Interest
What is the factor of return for enterprise?
Profit
What are the four questions that arise from the economic problem regarding production?
- What to produce?
- How much to produce?
- How to produce?
- To whom to distribute?
True or False: Scarcity of resources means that choices have to be made about their use.
True
Fill in the blank: The economic problem involves decision making about _______.
production, resource allocation and the distribution of final output and income.
How do individual choices in the present affect future spending and saving?
Current choices can limit future options, as spending now may reduce savings for later purchases.
What might a society that values future living standards do?
Allocate more resources to capital goods production now, possibly sacrificing current living standards for future benefits.
Explain how opportunity cost is implicit in decision making.
Every choice involves weighing the benefits of one option against the costs of another.
Define ‘scarcity’ in the context of economics.
Scarcity refers to the limited availability of resources in relation to unlimited human wants.
What are two types of consumer goods?
Durable goods - reusable (computer)
Single-use goods - one and done (petrol)
What is the role of enterprise in the factors of production?
Enterprise involves the ability of entrepreneurs to take risks in organizing other factors of production to produce value.
How does a firm decide how much to produce?
Level of demand and resource availability.
