ECONOMICS CHAPTER 1: THE BASIC ECONOMIC PROBLEM

Flashcards based on Chapters 1 and 2 covering the definition of economics, scarcity, types of goods, and the four factors of production including their rewards.

How is economics defined?

Economics is the study of how individuals, businesses and governments use limited resources to satisfy unlimited wants.

What is the basic economic problem?

The basic economic problem is that resources are limited while human wants are unlimited.

What is Scarcity?

Scarcity is the condition where resources are limited but human wants are unlimited.

What is an economic good?

An economic good are goods and services that are scarce and therefore have an opportunity cost.

What are free goods?

Free goods are goods that are not scarce and therefore have no opportunity cost.

What are some examples of economic goods?

Food, houses, clothing, computers, and cars.

What are two examples of free goods?

Air and sunlight.

What are the main differences between economic and free goods?

Economic goods are scarce, have an opportunity cost, require resources to produce, and usually have a price. Free goods are not scarce, don't have an opportunity cost, are freely available, and have no price.

What is the definition of factors of production?

These are resources used to produce goods and services.

What are the four factors of production?

Land, labor, capital and enterprise.

In economics, what does land refer to?

Land refers to all natural resources used in production, including resources that occur naturally; it does not only mean the ground itself.

What are examples of natural resources categorized as land?

Forests, rivers, minerals, oil, and farmland.

What is the reward for land?

Rent.

How is labor defined as a factor of production?

Labor is the human effort, both physical and mental, used to produce goods and services.

What are examples of labor roles?

Teachers, farmers, doctors and builders.

What is the reward for labor?

Wages.

What does capital refer to in the factors of production?

Capital refers to man made goods used to produce other goods and services, such as equipment and machinery, and is not money.

What are examples of capital?

Machinery, computers, tools, and factory buildings.

What is the reward for capital?

Interest.

What is enterprise?

Enterprise is the ability and willingness to organize the other factors of production and take the risks involved in running a business.

What are the responsibilities of an entrepreneur?

An entrepreneur combines land, labor and capital to produce goods or services, makes business decisions, and accepts the risks of making a loss if the business fails.

What are examples of enterprise?

A person opening a bakery or someone starting a clothing business.

What is the quantity and quality of factors of production?

The quantity of effect of production refers to how much of it is available while the quality refers to how productive or efficient it is

How does quantity of labor increase? (3)

It increases when more workers are available. This can be from

immigration

when people move into a country to live and work. The number of workers increases. This provides businesses with a larger workforce and can increase production.

population growth

as the population grows more people eventually reach working age and join the work force. This increases the number of workers available.

higher retirement age.

If people retire later, they remain in employment for longer increasing the size of the labour work force

How can they be an increase in the quality of labor?

The quality of labor improves when workers become more skilled And productive

Better education

Education gives workers knowledge and qualifications, making them more productive and able to perform More complex jobs

Training

Training help helps workers develop new skills or improve improve existing ones well workers usually produce better quality goods and services in a Work Moreri Efficiently

Improved health care

Healthy workers are generally more productive because they take fewer sick days and are able to work more efficiently

How can they be an increase in the quantity of capital

The quantity of capital increases when businesses have more machinery, equipment, and buildings available for production

Investment when firms invest in new machinery, equipment of factory buildings, they increased the amount of capital available. This often allows businesses to produce more goods and service services.

How does an increase in the quality of capital happen

The quality of capital improves when businesses use newer or more advanced equipment

Improved technology

Modern technology is usually faster, more accurate and more efficient than all the equipment. This increases productivity and reduces production costs.

Maintenance

Regular maintenance keeps machinery in good working condition, allowing you to operate efficiently and reducing breakdowns

How does an increase in the quantity of land increase?

The quantity of land increases when more natural resources become available

Discovery of natural resources

Finding new oil reserves, minerals of fertile land, increases the natural resources available for production

Land reclamation

Some countries create new land by reclaiming it from the sea or improving unusable land in increasing the amount available for economic activities

How do you increase the quantity of enterprise?

The quantity of enterprise increases when more people decide to start businesses

Government support

Governments can encourage entrepreneurship by offering grants, low interest, loans or tax incentives to new businesses

Availability of finance

People are more likely to start businesses if they can borrow money or obtain investment

How does an increase in the quality of enterprise work?

The quality of enterprise improves when entrepreneurs become better at managing businesses

Business education

Studying business and economics helps entrepreneurs make better decisions and manage resources more efficiently

Experience

As entrepreneurs gain experience, they become better at solving problems, managing workers and identifying business opportunities

What does opportunity cost?

This is the next best alternative that is given up when a choice is made

What is a PPC?

A production possibility curve is a diagram that shows the maximum possible combinations of two goods of services that any economy can produce using all of its available resources efficiently

Points on a ppc line shows what

A point on the curve shows that all available resources are being fully used resources are being used efficiently, and the economy is producing the maximum output possible with its current resources. This is known as productive efficiency

What does the point inside the PPC curve show?

This shows that resources are not being fully used. This may be because of unemployment in efficient use of resources or economic recession.

What does the point outside the PPC curve indicate?

A point outside the PPC represents a level of production that cannot currently be achieved. This is because the economy does not have enough resources of technology to produce at that level however, if the economy experiences grossed in the future, this point may be become attainable.

What does an outward shift in the PPC mean? and what causes it

An awkward shift means the economy can produce more of both goods than before. It is caused by

Increase in the quantity of resource resources

If any economy has more workers land or capital it can produce more goods and services

Improved technology

New technology allows businesses to produce more efficiently in increasing output

B Better education,

a more skilled workforce Is more productive, allowing the economy to produce more?

Discovery of natural resource resources

Finding new oil minerals of a Thailand increases the resource resources available for production

Investment

Investment and new factories, machinery and equipment increases productive capacity

Consequences of an outward shift in the PPC

Economic growth , higher output, more employment, opportunities, higher living standards, and increased national income

What is an N word shift in the PPC and what are its causes

An inward shift means the economy can produce less of both goods than before

It is caused by

Natural disasters

Floods and earthquakes can destroy resources in reduce production

War

War damages, factories, infrastructure in labor, reducing productive capacity

Disease

A major disease outbreak can reduce the workforce and lower production

Loss of natural resources

Running out of important resources reduces the economies ability to produce goods and services

Consequences of an inward shift in the PPC

Lower production, higher unemployment, lower economic growth, lower living standards