The Economic problem Flashcards
(24 cards)
What is meant by the economic problem?
Our natural resources are depleting there isn’t enough to satisfy our wants and needs. Therefore, choices must be made.
What is the meaning of Scarcity?
Resources on earth are depleting whereas the demand for these resources is infinite
What are non-renewable resources?
Resources that won’t be replaced after being used. E.g
- Oil
- Iron
- Coal
What are renewable resources?
Resources that can be replenished after being used. E.g
- Solar Energy
- Wind Energy
Economic Goods
Goods created from non-renewable resources, meaning they need a higher price.
Free Goods
Goods that are in unlimited supply, therefore meaning that the opportunity cost is zero
What is opportunity cost?
the loss of other alternatives when one alternative is chosen
E.g if you spend £10 billion on funding the NHS, you won’t be able to spend £10 billion on funding public transport.
Example of opportunity cost for a consumer
A consumer may have enough money to buy one of two items such as either a sandwich or packet of crisps, if they buy the sandwich, the opportunity cost is not buying the crisps
Example of opportunity cost for a company
If a company chooses to upgrade the IT system rather than building a new factory, the opportunity cost is the new factory as production can consequently be lower.
What is a production possibility frontier (PPF)?
A graph that shows the maximum potential output of an economy when all resources are fully employed. See graph in notes
What are capital goods?
Goods sold between businesses to make different goods. Such as steel for making a chair frame or machinery
What are consumer goods
Goods sold to customers that have a use or give satisfaction, such as a car or an expensive belt
When constructing a PPF what do you need to assume?
That the economy can produce both consumer and capital goods
Why can the curve in a PPF graph not be overtaken?
We have a limited amount of resources and labour so you can’t go beyond maximising efficiency.
Why is the PPF curved concave and not straight?
The law of diminishing returns
What is the law of diminishing returns
The law states that if we add more unites of one variable factor to the fixed amount of another factor, the total output will first rise and then fall
Give an example of the law of diminishing returns put into practice
If you keep on adding chefs into a kitchen with a fixed size they will eventually obstruct each others work slowing down production
What does it mean when the PPF curve shifts outwards?
It means there has been economic growth
What is meant by economic growth?
The economy has grown in size, I.e it has more resources at its disposal meaning the economy is able to produce more.
When does economic growth occur?
When there is an increase in quantity or quality of an economy’s factors of production.
What are the factors of production?
Land, Labour, Capital, Enterprise.
Give an example of economic growth
Capital - GDP per capita increases
Labour- workers are putting more hours into their work and working more efficiently
Land- technical advancements in machinery meaning efficiency increases
What happens if your produce more of one good than the other? (PPF)
The production rate of the other good will decrease and there will be less of that good because more supplies are being used to produce the other good
How can the PPF curve also shift inwards?
If the quality or quantity of factors of production decreases. Such as natural disasters and wars, recession, fewer supplies can be bought
