ECON - Basic Economic Problem

Vocabulary flashcards covering the basic economic problem, factors of production, rewards, and the Production Possibility Curve (PPC) based on the Unit 1 lecture notes.

Economics

The study of how people, firms, and governments use scarce resources to satisfy unlimited wants.

Scarcity

A condition that occurs because human wants are unlimited but resources are limited.

Opportunity Cost

The next best alternative forgone when making a choice.

Free Goods

Goods that are available in unlimited quantities and therefore have no opportunity cost, such as air or sunlight.

Economic Goods

Goods that are scarce in relation to demand, where using resources for one good means sacrificing the production of something else.

Labour-intensive methods

Production methods that prioritize the use of more workers over machines.

Capital-intensive methods

Production methods that prioritize the use of more machines over workers.

Trade-off

The act of giving up one thing to gain another, such as a government choosing more healthcare over military spending.

Factors of Production

The resources used to produce goods and services, categorized into land, labour, capital, and enterprise.

Land

All natural resources used in production, such as oil, forests, water, minerals, and fish.

Rent

The economic reward associated with the factor of production known as land.

Labour

The human effort used in production, provided by individuals such as teachers, doctors, and builders.

Wages

The economic reward associated with the factor of production known as labour.

Capital

Man-made goods used to produce other goods, including machines, factories, computers, and trucks.

Interest

The economic reward associated with the factor of production known as capital.

Enterprise

The ability to organise production and take risks by combining resources and starting businesses.

Profit

The economic reward associated with the factor of production known as enterprise.

Production Possibility Curve (PPC)

A curve showing the maximum combination of two goods that can be produced when all resources are fully and efficiently used.

Increasing Opportunity Cost

The phenomenon where more and more of one good must be sacrificed to produce another because resources are not equally good at producing every good.

Underutilisation of resources

Represented by points inside the PPC, indicating that unemployment exists, factories are idle, or resources are wasted.

Reallocation of resources

A movement along the PPC that occurs when the economy produces more of one good and less of another.

Economic growth

An increase in the productive capacity of the economy, represented by an outward shift of the PPC.