Scarcity, choice and opportunity cost chapter 1 Flashcards
fundamental economic problem
scarce resources but unlimited wants. Wants are unlimited because there is always likely to be something else that a person wants whatever their income. means that individuals, firms and governments have to make choices due to the scarcity of resources.
resources
inputs available for the production of goods and services.
wants
the goods and services that people may like to have but are not always realized. improves the quality of life. can be called luxuries. luxuries for one might be essential for the other. wants can change with age. wants can develop and expand as a result of new experience or when one sees others enjoying a good or service.
needs
things that are necessary for survival, such as food.
scarcity
situation in which wants and needs are greater than the resources available.
choice
resources are scarce so individuals, firms and governments have to consider alternatives
factors of production
resources or inputs available in an economy that are used in the production of goods and services.
firm
any business that hires factors of production to produce goods and services
opportunity cost
the cost expressed in terms of the next best alternative that is given up when a choice is made. Given limited resources and unlimited wants, individuals, firms and governments have to choose which wants to satisfy. It can be applied in a variety of contexts and is helpful for decision-makers such as individuals, firms and governments.
what is a scale of preference
a scale on which you place your more urgent wants at the top and the less urgent ones at the bottom. Each individual’s scale of preference is a product of a set of influences. Together these influence your likes and dislikes. scales of preference may vary widely between individuals.
what to produce
Economies cannot produce everything, so they must decide what to produce and in what quantities.
how to produce
Firms need to consider how they can get the maximum use out of the resources available. Sometimes firms need to consider issues other than purely economic concerns when deciding how to produce.
for whom to produce
Governments have to decide whether everyone is going to have a more or less equal share of what is produced or whether some will have more than others. Some economies aim to create a more equal society through policies that redistribute wealth and income from the rich to the poor through taxation. Inequality is a significant issue in most emerging economies where there is a widening gap between rich people and people living in poverty.
