1. The basic economic problem

Economic Terms

Wants

desires for goods and services → not essential to living

Resources

factors used to produce goods and services

Economic problem

unlimited wants exceed finite resources

Scarcity

a situation where there is not enough resources to satisfy everyone’s wants

Economic good

a product which requires resources to produce it and therefore has an opportuity cost

Free good

a product which does not require any resources to produce and has no opportunity costs.

Capital goods

human-made goods used in production

Consumer goods

goods and services provided for consumers purchased by households for own satisfaction

Entrepreuner

a person taking over responsibility and risk to start and create a new business

Occupationally mobile

the capability of a worker/ person to change jobs or profession

Geopgraphicaly mobile

is the capability to change location - moving from one location to another

Mobility of labour

the ability of labour to change where workers work or in which profession

Mobility of enterprise

the ability to change what kind of business you run and where

Labour force

people in work and those actively seeking work

Productivity

the output per factor of production in an hour

Factors of production

• land

• labour

• capital

• enterprise

Output

the production of product (goods and services)

Investment

the spending on capital goods

Gross investment

the total spending on capital goods

Depreciation (capital consumption)

the value of goods and services which have worn out or become less of meaning

Net investment

gross investment (tot spending) - depreciation (no more required goods)

Negative net investment

a reduction in the number of capital goods (human made goods made in production)

Opportunity cost

choosing the next best alternative when making an economic decision

Production possibility curve

shows the maximum amount of two goods that can be made using current resources and technology.

Movement in PPC

when resources used are moved from one product to another.

Shift in PPC

when line is moved.

1. due to better availability of resources (discovery of new materials, better or more technology) which causes an outward shift of PPC

2. decreases in resources creating an inward shift

• natural disasters

• wars