Chapter 1-the nature of the basic economic problem

What is the basic economic problem?

Scarcity

What is scarcity

unlimited needs and watns, limited resources

Why does scarcity exist?

They are not enough resources to satisfy all human wants

What are wants?

goods and services that humans would like to have

Why do people have to make choices?

resources are scarce and cannot satisfy all wants

what is a need?

essential for survival

what is a want

something that is not essential for survival but people desire

what is a good

a tangible product that satisfies a want or a need

what is a service

an activity provided to satisfy a want or a need

what is a free good

a good that is unlimited in supply and has no opportunity cost

what is an economic good

a good or service that uses scarce resources to produce, therefore having an opportunity cost

why do economic goods have an opportunity cost

because scarce resources are used to produce economic goods, those resources could have been used to produce something else

what does scarcity force individuals, businesses and governments to do?

make choices about how resources are used

what are economic resources

the resources used to produce goods and services

what is resource allocation

the way scarce resources are distributed between different uses

what are the 3 central economic questions

What to produce? Whom to produce for? How to produce?

what does “what to produce?” mean

deciding which goods and services should be produced and in what quantity

what does “how to produce?” mean

deciding what methods should be used to produce goods and services

what does “whom to produce for?” mean

deciding who will receive the goods and services

why must an economy decide for whom to produce?

there are not enough resources to satisfy everyones needs and wants

capital-intensive method of production

a production method that uses a relatively large amount of capital compared with labour

labour-intensive method of production

a production method that uses a relatively large amount of labour compared with capital

what is an economic agent

an individual, group or organisation involved in making economic decisions

name economic agents

consumers, workers, producers and governments

what is the role of consumers?

to purchase and consume goods and services

what is the role of producers?

to produce goods and services

what is the role of workers?

to provide labour in return of income

what is the role of a government in an economy?

to make economic decisions, provide public services and influence the allocation of resources