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What’s the ultimate purpose of economic activity?
To satisfy the needs and wants of society through production of goods and services.
Needs - defintion
Things people can’t live without
Wants - definition
Things people desire, but can live without
What is the basic economic problem?
Wants and needs are infinite, but resources are finite.
How do economists work out this problem?
By working out how to allocate these resources as efficiently as possible.
What are the 3 fundamental economic questions?
What gets produced? (resources)
How is it produced? (producers) - allocation of resources
Who gets what is produced? (consumers) - distribution of outputs.
What type of economy does the uk have?
Liberal - with a free market and little government intervention.
Free market economy - definition
One where firms decide what goods and services to produce with limited government intervention
How does the market system answer these fundamental questions?
(free market)
What gets produced? Supply and demand (price mechanism)
How is it produced? Most efficient and profitable way possible.
Who gets what is produced? Those who can afford it.
How does the planned system respond to these questions?
(communism)
What gets produced? The government decides.
How is it produced? In a way that ensures everyone has a job
Who gets what is produced? Everyone
What is a mixed market system, and an example
A combination of the other two, with some intervention but also capitalist principles.
China
Economic agents - definition
Individuals and firms that partake in economic activity, the demand for supply of goods and services.
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