The Basic Economic Problem 1.1 Flashcards
(11 cards)
What is the basic economic problem?
Scarcity, which means not enough resources to satisfy our unlimited wants.
Scarcity underpins many economic problems such as unemployment and supply chain issues.
Define opportunity cost.
The next best alternative foregone when making a choice.
It emphasizes the importance of recognizing the second best option when choices are made.
List the four factors of production.
- Land
- Labour
- Capital
- Enterprise
These categories help economists analyze resource allocation.
What question arises from scarcity regarding production choices?
What to produce?
This involves deciding on the quantity and type of goods to produce, such as food or defense.
What is the second key economic question related to resource allocation?
How to produce?
This involves determining the most effective methods of production given scarce resources.
What is the third key economic question regarding distribution?
For whom to produce?
This question addresses how to prioritize the satisfaction of needs and wants among different groups.
What does ‘Ceteris Paribus’ mean?
All things remain equal.
This Latin term is used in economics to simplify analysis by holding other variables constant.
Define the short run in economic terms.
The time period when a business can change some inputs, like labour, while keeping others steady.
Output changes during this period as variable factors are adjusted.
Define the long run in economic terms.
A period when more than one factor of production can change.
This allows firms to potentially improve overall production capabilities.
What is a positive statement?
A statement based on actual evidence.
Example: A fall in supply of petrol WILL lead to an increase in price.
What is a normative statement?
A statement based on what you think MAY happen.
Example: This SHOULD reduce traffic congestion.
