The Basic Economic Problem: Unit One

Economic Problem

Humans have unlimited wants, but resources are limited.

Opportunity Cost

The next best alternative that is given up when a decision is made.

Natural Resources

Resources offered by nature without human intervention (e.g. forests, water).

Human-made Resources

Resources humans create for their use (e.g. factories, machines).

Human Resources

People and their skills.

Scarce

Describes a resource or good/service that is limited in supply compared to demand.

Choice

We can do one thing or the other.

Sacrifice

If we choose to do this with a resource, we cannot do other things with it.

Free Goods

Abundantly available such that no sacrifice has to be made to use or supply it.

Economic Good

A good that is scarce and therefore requires a sacrifice to acquire.

Factors of Production

The things that are coordinated/combined to make a business successful/run.

Rewards

They are the incentive for the providers/producers of the factors of production. They are in the form of incomes.

Land

Refers to all natural resources used for production.

Reward for Land

Rent.

Labor

Refers to physical and mental contributions of an employee.

Reward for Labor

Wages.

Capital

Refers to all items used in the production process.

Reward for Capital

Interest.

Enterprise

The factor that brings together the factors of production to produce goods to make profits.

Reward for Enterprise

Profit.

Geographical Mobility

This is how a factor of production can be moved from one location to another.

Occupational Mobility

This refers to how a factor of production can be moved from one use to another.

Quality(Of a Factor of Production)

How productive/effective a factor of production is in the contribution it makes to the production process.

Improvement for Quality

Increased investment.

Improvement for Quantity

Increased mobility.

Consumers

People who by goods and services.

Workers

People who supply labor in exchange for a wage.

Producers

People who make and sell goods and services.

Government

Acts as both a consumer and a producer and also as a lawmaker.

Production Possibility Curve