The Basic Economic Problem

These flashcards cover key economic terms and definitions from the lecture notes on the basic economic problem, focusing on concepts of scarcity, choice, opportunity cost, and economic systems.

Economics

The study of how individuals, firms, and governments make choices about using scarce resources to satisfy unlimited wants.

Scarcity

The situation where limited resources cannot satisfy unlimited wants and needs.

Opportunity Cost

The value of the next best alternative forgone when a choice is made.

Factors of Production

Resources used in the production of goods and services, including land, labor, capital, and enterprise.

Free Goods

Goods that exist in abundance and do not require resources to obtain, such as air or sunlight.

Economic Goods

Goods that require resources to produce and therefore have an opportunity cost.

Utility

The satisfaction or benefit a consumer gains from consuming a good or service.

Welfare

The overall well-being of people in an economy.

Production Possibility Frontier (PPF)

An economic model that illustrates the maximum possible combinations of two goods that an economy can produce using all resources efficiently.

Trade-off

Gaining more of one thing by giving up some of another.

Economic System

The method by which resources are owned, organized, and allocated within a society.

Rational Decision-Making

The economic assumption that individuals make choices based on the highest net benefit.

Mixed Economy

An economic system that combines elements of both free-market and command economies.

Command Economy

An economy where the government makes all key economic decisions and controls most resources.

Market Economy

An economic system where most resources are owned and controlled by private individuals and firms, making decisions based on supply and demand.

Labor

A factor of production that includes the physical and mental efforts of people used in the production of goods and services.

Capital (Economics)

A factor of production consisting of man-made resources used to produce other goods and services, such as machinery, tools, and factories.

The overall well-being of people in an economy is referred to as .

Welfare

is the satisfaction or benefit a consumer gains from consuming a good or service.

Utility

An economic model that illustrates the maximum possible combinations of two goods that an economy can produce using all resources efficiently is called the .

Production Possibility Frontier (PPF)

In a economy, the government makes all key economic decisions and controls most resources.

Command Economy

What is the fundamental concept that drives economic choices due to limited resources versus unlimited wants?

Scarcity

Explain what a 'trade-off' means in economics.

A trade-off means gaining more of one thing by giving up some of another, illustrating the unavoidable choices due to scarcity.

What is the core idea behind 'Rational Decision-Making' in economics?

The assumption that individuals make choices that result in the highest possible net benefit for themselves.

What are the four main 'Factors of Production'?

Land, Labor, Capital, and Enterprise.