Economics foundations & resource allocation

What is the basic economic problem?

How to best allocate scarce resources given there are unlimited wants

What is Land FoP?

Refers to all natural resources used in production of goods and services. Could be raw materials or physics land.

Examples of land

Water, coal, oil

What is opportunity cost?

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

What is the tertiary sector?

The sector of the economy concerned with services.

Give 3 examples of the primary sector

Farming, coal mining, fishing

Give 3 examples of the secondary sector

• Automobile production

• Textile manufacturing

• Construction of buildings.

Give 3 examples of the tertiary sector

Healthcare, education, insurance

What is the difference between a good and a service?

A good is a tangible product that can be seen and touched, whereas a service is intangible and cannot be seen or touched.

What is the difference between a factor market and a product market?

Factor markets are where factors of production are bought and sold, whereas product markets are where finished goods are bought and sold.

What is the difference between needs and wants?

A need is a good that is necessary for survival such as food and water. However, a want is a desired product that is not necessary for survival e.g jewellery.

What is the difference between costs and benefits?

costs are what you give up or sacrifice, while benefits are what you receive.

What is the difference between specialization and division of labour?

Specialization refers to focusing on a specific task or area of production based on skills.

Division of labor, on the other hand, is the process of breaking down a larger task into smaller, specialized tasks that can be performed by different workers.

What is the reward for land?

Rent

What is the reward for labour?

Wages

What is the reward for capital?

Interest

What is the reward for enterprise?

Profit

What is the central purpose of economic activity?

The coordination of goods and services to satisfy needs and wants.

Who does division of labour benefit?

Producers and consumers

Give 3 advantages of division of labour

• Increased productivity

• Lower costs per unit of production

• Can take advantage of economies of scale

• Workers become highly skilled.

Give 3 disadvantages of division of labour

• Repetitive work can lower motivation and eventually cause lower productivity.

• Workers may take less pride in work and quality will suffer.

• Dissatisfied workers causes absence, lowering productivity.

What is a market?

A place where producers and consumers come together to exchange goods and services. Can be digital or physical.

What is the government?

A political institution that makes decisions about how a country is run and manages its operations.

What is profit?

The amount of money/ financial gain a business makes from selling goods or services.

Total revenue - total costs

What is exchange?

The giving up of something that the individual or firm has, in return for something they wish to have but do not possess.

What are the 3 economic groups?

Consumers, producers and government.

Advantages of the primary sector being the largest

Lower input costs & potential resource wealth

Disadvantages of the primary sector being the largest

Lack of diversification, leading to vulnerability to global price inflations.

Advantages of secondary sector being the largest

• Increased productivity

• Higher incomes

• Increased employment

Advantages of the tertiary sector being the largest sector

• High value service oriented jobs.

• Potentially higher GDP growth.