1.1.3 The Economic Problem
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13 Terms
What is economic problem is based on? And why?
Scarcity. It arises because there are never enough resources to satisfy all our needs
What is scarcity?
There are limited resources compared to unlimited human wants, so choices have to be made about how to use those resources
What are consumer goods?
Finished product bought by individual
What are capital goods?
Inputs into production process to create other goods
What choices have to be made?
What goods and services to produce; how to provide them; who should receive them
What is rationing?
Is the way of allocating scarce goods and services when market demand exceeds available supply
Who decides prices in command economies?
Government e.g on healthcare in the UK
How does it work in free market economies?
The price is decided where the resources are allocated. E.g concert tickets are expensive so only rich can buy them
What involves when the choice is made?
Trade-off you have to give up something else
What is opportunity cost?
The cost of the next best alternative forgone when a choice is made
When is the opportunity cost is unavoidable?
When we have scarcity
What is marginal analysis?
The effects of producing or consuming one extra unit of a good or service. It is a study of the additional benefits (gains) and costs of a small change in a decision, in order to determine whether the change is worthwhile.
How many economic agents are there and what they are?
Consumers- they demand goods and services. To be able to purchase goods, consumers need income, so they make decision about supplying their labour.
Producers- produce outputs of goods and services. They make choices about which goods or services to produce and the techniques of production to employ. They also need to purchase machinery and raw materials to produce G and S
Government- it undertakes expenditure and influences the economy through taxation and the regulation of markets. Government actions affect all other economic agents and play a significant role in shaping economic activity
