Topic 1: The Basic Economic Problem

What are economic goods?

goods that benifit society, have the problem of scarcity, have an oppourtunity cost

What are free goods?

Goods that have no scarcity so no opportunity cost e.g air and water

What is the basoc economic problem?

The scarcity of resources (infinite wants and finite resources) therefore choices in how to allocate resources need to be made and they need to be optimal

What are positive statements?

Objective statements (can be tested with factual evidence)

What are normative statements?

Subjective statements that are based on opinion rather than facts

What are economic agents?

The economic agents are: Governments, Firms and Households

It is assumed that economic agents act in their own interest

BLURT: Government as an Economic agent

.Assumed to act on behalf of the consumers

.Intervine in the economy to different extents

BLURT: Firms as an Economic agent

.Assumed that firms exist to maximise profit

.However may have different motives such as social welfare

BLURT: Households as Economic agents

.Makes desisions about how to spend their limited resources

.Consumers chose options that maximise their utility

.Demand wages and good working conditions

What is consumer’s Utility?

The total satisfaction gained from consuming a good or service

What are the factors of production?

Land, Labour, Capital and Enterprise

BLURT: Factors of production

What are renewable resources?

Resources that can be replenished so that the level of stock can be maintained over a period of time which makes them SUSTAINABLE

What are non renewable resources ?

resources that cannot be renewed and are finite. Scarcity means that they are unsustainable