- Basic Economic Problem
Economics – The study of how scarce resources can be allocated to satisfy people’s unlimited wants.
Scarcity – When there are not enough resources to satisfy our wants and needs.
Resources – The inputs that are used in the production process to produce goods and services. These are also called Factors of Production. Resources are limited.
- Capital – Human-made goods that are used in the production of other goods. Payment comes in Interest
- Entrepreneurs (Enterprise) – The person who takes the risk and has the skills to combine the other factors of production to produce goods and services. Payment comes in Profit
- Labour – Human work or effort and the people who offer their services to businesses in exchange for wages. Payment comes in Wages
- Land – Any resource that exists as part of a natural process. Can be renewable or non-renewable. Payment comes in Rent
Geographical mobility – the resource is capable of changing location
Occupational mobility – the resource is capable of changing use
Opportunity Cost – The next best alternative foregone e.g. Mary could buy lettuce or chips with her $5 and she chose chips. Lettuce would be Mary’s opportunity cost.
Production possibility curve – a curve showing the maximum output of 2 products and combinations of these products that can be produced given existing resources and technology.
Consumer – people or firms who need or want goods and services
Producers – use resources to make goods and services to satisfy consumers’ needs and wants
Wants – what we desire but do not necessarily need to survive e.g. games, bags
Needs – what we must have in order to survive e.g. food, clothing, shelter
Renewable resources – resources that will regenerate naturally within a reasonable time frame e.g. Fruit, Trees, Vegetables
Non-renewable resources – resources that will not regenerate naturally within a reasonable time frame e.g. Coal, Oil, Ores
Free good – goods that are available without limits e.g. air, sunlight
Economic good – goods that are scarce in comparison to people’s wants and need and therefore must be paid for e.g. television, paper, electricity
Public (collective) good – goods that are non-excludable and non-rival
Non-excludable – once paid for, it is impossible to stop people from using the good or service. This creates the ‘free rider’ problem
Non-rival – consumers do not have to rival each other for use of the good; it will not run out
Merit good – a commodity or service that is regarded by society or government as deserving public finance e.g. education
Demerit good – a commodity or service that is regarded by society or government as not deserving public finance e.g. cigarettes, alcohol
Consumer good – goods that are used and paid by individuals or groups in the household sector Normal goods – goods we demand more of as our income increases e.g premium steak
Inferior goods – goods we demand less of as our income increases e.g second hand goods, ‘budget’ brand goods
Durable goods – goods that can be used more than once
Non-durable goods – goods that are perishable and do not last very long Positive good – beneficial to society e.g. clean water, medicine
Negative good – a cost to society e.g. pollution, waste products
Disposable Income – the money remaining after taxes are paid. If taxes increase, disposable income decreases
Semi-finished goods – goods that are used to produce other goods e.g. leather, wool