The Basic Economic Problem Flashcards
What is the Basic Economic Problem?
Scarcity, Unlimited Wants but Finite resources
What is Opportunity Cost, Economic Goods & Free Goods?
Opportunity Cost is the cost of the next best alternative forgone. When a decision is made, the benefit of the thing that was not chosen becomes a cost. A free good is a good that doesn’t have an opportunity cost. Economic goods are the opposite.
Factor of Production Definition & Examples + Payments
The Factors of production are the resources used to produced goods & services.
LAND:
Location and resources like oil that can be found within a spot. The payment for Land is RENT.
LABOUR:
The price for workers. Some people have different qualities of labour based on skill. The payment is WAGES
CAPITAL:
Money or Machinery. The payment for capital is INTEREST E.g Loans
ENTERPRISE:
Enterprise is a business idea. The payment is PROFIT E.g If I thought of an idea and start a company, I need a share of the profits
Types of Resources
HUMAN-MADE RESOURCES:
When humans use natural resources to make something new that provides utility E.g Steel, CPUs
HUMAN RESOURCES:
Physical man power of humans E.g Doctors, Waitresses and Accountants
NATURAL RESOURCES:
Anything that is available naturally in the world E.g Water, oil and animals
Explain the effect of Quantity and Quality on the Factors of Production
The quantity and quality of the factors of production determine the productive potential of a country. If the quantity/quality falls, the productive potential falls and vice versa. An change in the productive potential of a country can be seen in a productive possibility curve. Examples include changes in cost of productions, technological advances, change in education & skills and regulations
What is mobility of Factors of Production
The mobility of the factors of production is how easily firms can switch between the factors of production during the production process.
What affects the Mobility of Labour
Geographical Immobility, due to works finding it difficult to move to another place in order to secure employment. E.g family ties, lack of security/accommodation.
Occupational Immobility, when the skills aren’t transferable, making hard tos wap.
