Topic 1: Basic Economic Ideas

Combination of definitions

Labour

physical or mental human resources

(reward: wages)

Capital

man-made aid to production

(reward: interest)

Land

natural resources

(reward: rent)

Enterprise

someone who supplies goods to the market for profit

characteristics:
- risk-taker
- innovator
- organizes the three factors of production

Factor endowment

range of resources available in an economy

Opportunity cost

the next best alternative foregone

Specialization

the process whereby individuals, firms and economies focus on producing those products in which they have an advantage

Division of Labour

the process of production is broken down into a series of small narrowly, defined tasks

Free good

goods that have…

• no price attached

• no scarcity

• no opportunity cost

Merit good

socially desirable good

Demerit good

Socially undesirable good

Public good

goods produced by government

(e.g.: lighthouse, national defense…don’t say public toilets)