Section 1 - Intro to economics

What is the economic problem?

There are unlimited wants for goods and services but only scarce (limited) resources to produce them

What are unlimited wants?

The infinite desire for goods and services — there will always be more things people want than resources to produce them

What is scarcity?

When there is an insufficient amount of resources to satisfy all wants

What is the difference between needs and wants?

Needs are goods/services required for survival (e.g. food, water, shelter) — Wants are goods/services desired but not essential for survival

What are the three key economic questions?

1) How should goods and services be produced? (e.g. use more technology, large-scale production) — 2) What should be produced? (e.g. fizzy drinks, machines or hospitals) — 3) For whom should goods and services be produced? (e.g. only those who can afford them, or provided by government for everyone)

What is an economic choice?

An option for the use of selected scarce resources — economists weigh up costs and benefits to decide the most beneficial use of resources for society

What are costs and benefits of economic choices?

If costs of a good are greater than benefits it is a poor use of resources and production should be reduced — if benefits are greater than costs more should be made so society can benefit — economists also consider side effects on society beyond consumers and producers

Who are the three main economic agents?

Consumers, Producers, Government

Define a consumer

The buyer of goods and services — influenced by how much benefit they will gain from a purchase

Define a producer

The seller of goods and services — influenced by how much profit they will receive

Define a government (as an economic agent)

A group of people with the power to run a country — influenced by wanting the best for society (e.g. changing unemployment levels, adding taxes)

What is a good?

A tangible product — something that can be seen or touched (e.g. a car, a phone)

What is a service?

An intangible product — something that cannot be seen or touched (e.g. a haircut, insurance)

What are the four factors of production?

Land, Labour, Capital, Enterprise

Define Land (FoP)

The natural resources used to make goods and services (e.g. oil, coal, farmland)

Define Labour (FoP)

The workforce — the quantity and quality of people available and willing to work

Define Capital (FoP)

Man-made aids to production used to make goods and services (e.g. machinery, computers, delivery vehicles)

Define Enterprise (FoP)

The factor of production that involves taking a risk and combining the other three factors to produce goods and services

What is profit?

The amount of money a producer has left after all costs have been paid — when total revenue is greater than total cost

What is opportunity cost?

The next best alternative given up when making an economic decision — once a decision is made, the opportunity cost is the value of the option not chosen

What is a market?

A way of bringing together buyers and sellers to buy and sell goods and services

Name the 5 types of market and how they operate

Street market (stalls in a public area) — Shop (interaction between shopkeeper/customer) — Auction (price set by buyers competing) — From home (internet or phone catalogues) — Online (buying and selling via internet)

What is a market economy?

An economy where resources are allocated entirely by the forces of demand and supply, without government intervention

What is a planned economy?

An economy where all resources are allocated by the government rather than market forces

What is a mixed economy?

An economy that uses both market forces (demand and supply) and government intervention to allocate resources

What are the three sectors of the economy?

Primary: extraction of natural resources (e.g. farming, fishing, mining) — Secondary: manufacturing raw materials into finished goods (e.g. car production) — Tertiary: provision of services (e.g. retail, education, healthcare)

What is the difference between production of goods and services?

Goods involve using raw materials to manufacture a whole physical product — Services involve providing an action or experience rather than a physical product

What is economic sustainability?

The best use of resources in order to create responsible development or growth now and into the future — decisions improve quality of life without reducing resources for future generations

What is social sustainability?

The impact of development or growth that promotes an improvement in quality of life for all now and into the future — e.g. improving wellbeing, equality and access to services for all groups

What is environmental sustainability?

The impact of development or growth where the effect on the environment is small and possible to manage now and into the future — includes use of renewable resources and reducing pollution and climate change

What is specialisation?

The process by which individuals, firms, regions and countries concentrate on producing the goods and services they are best at producing

What is exchange?

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

What is division of labour?

Specialisation by individuals within a workplace — workers each focus on specific tasks rather than completing the whole production process

What are the benefits of specialisation for producers?

Increased output — higher productivity as workers become more skilled — higher quality production — bigger market for each product — economies of scale reduce average costs

What are the costs of specialisation for producers?

If one part of production fails the whole system may fail — may not source necessary scarce resources — workers may become bored — over-dependence on one product means demand changes hit harder

What are the benefits of specialisation for workers?

Increased skill may lead to higher earnings — workers do what they are best at increasing productivity — increased job satisfaction from mastery of a task

What are the costs of specialisation for workers?

Boredom leading to demotivation — workers unable to do different jobs if industry changes — deskilling if made redundant — may be easier to replace specialised workers with machines

What are the benefits of specialisation for countries?

Countries produce what they do best giving greater efficiency — more investment and job creation — international trade increases — increased choice and higher standard of living for consumers

What are the costs of specialisation for countries?

Workers in declining industries become unemployed — if global demand shifts the whole economy may suffer — over-exploitation of resources — may lead to serious environmental damage

What is the product market?

Where final goods and services are offered for sale and bought by consumers, businesses and the public sector — price is determined by demand and supply

What is the factor market?

Where the services of the factors of production (e.g. skills of labour, ability to take risk of enterprise) are bought and sold

How are factor and product markets interdependent?

Households sell factors of production to firms via the factor market — firms use those factors to produce goods and services sold back to households via the product market [DRAW: circular flow diagram showing households and firms linked by factor market at bottom and product market at top]