The basic economic problem Flashcards Preview

Cambridge IGCSE Economics > The basic economic problem > Flashcards

Flashcards in The basic economic problem Deck (20)
Loading flashcards...
1

economic good

a product which requires resources to produce it and therefore has an opportunity cost

2

free good

a product that does not require any resources to make it and so does not have an opportunity cost.

3

factors of production

the economic resources of land, labour, capital and enterprise
C- CAPITAL
E- ENTERPRISE
L- LAND
L- LABOUR

4

the basic economic problem

people have unlimited wants and needs but there are limited resources to satisfy these wants and needs, so choices have to be made on how to allocate these limited resources to satisfy as many needs and wants as possible

5

needs

essentials things for people to live adequately
food, water ,shelter, clothing, medical needs

6

wants

luxuries people desire to live more comfortably

7

Capital

manufactured, man-made goods used to produce other goods and services rather than being used for its own sake
e.g. machinery, tool, office

8

enterprise

skills a business person requires to combine and manage successfully the other three factors of production, the ability to undertake risk and decision-making

9

land

natural resources, obviously land for farming and the land on which buildings are built, but also resources found underground, such as coal, oil and etc.

10

labour

the mental or physical skills of a human which are used to produce a service or good

11

questions when making goods and services

What to produce?
How to produce?
For whom to produce it for?

12

opportunity cost

the cost of the benefit foregone by giving up the next best alternative when making a decision

13

Production Possibility Curve PPC

The PPC represents potential prospects for the production of a pair of products

14

What does a PPC show

productive capacity, maximum output of an economy given the resources and factors of production it has

15

What does being inside the PPC mean

all the resources are not being used to the best of their ability - inefficiency

16

What does being on the PPC mean

ALL the available resources are being used EFFICIENTLY

17

what other concept of economics does the PPC show

Opportunity cost and scarcity

18

different types of economies

planned economies, market economies

19

planned economy

- government makes decisions about what, how, for whom the goods are produced
- government main owner of most factors of productions (FoP)
- Government is the employer and sets wages and prices
- Goods produced may not match consumers' wants
- Not many planned economies in the world (ex: North Korea)

20

Market economy

- a.k.a free enterprise economies
- minimum government intervention/involvement
- land & capital are privately owned
- consumers decide what is produced by paying more for the things which they want
- firms and resources produce things which are high in demand (advantgaes - efficient use of resources, more choice and makes lots of money) (disadvantages - profit maximisation aims mean that public good might not be supplied and external costs not accounted for)
No pure market economies exist as far as we know