The basic economic problem

Cards (47)

  • Economics is the study of human behavior, who uses, why we use and how we use
  • Who decides how scarce resources are used?
    The Government, The people and businesses
  • Public sector organizations are owned by the government and are run by the government.
  • Private sector organizations are owned and controlled by individuals or groups of individuals.
  • Economic goods are limited in supply
  • Examples of economic goods could be oil, wheat and metals
    • Free goods are unlimited in supply
  • Examples of free goods are air, sunlight and fruit
  • The economic problem deals with the issue of scarcity and how best to produce and distribute resources
  • Opportunity cost is the cost of the next best alternative that is foregone when a decision is made.
  • The four factors of production are Land, Labour, Capital and Enterprise
  • Land is natural resources, like oil, coal and water
  • Labour is Human Resources, which includes skilled and unskilled
  • Capital is manufactured resources. Machinery, tools and vehicles. Capital includes human knowledge and skills.
  • Enterprise is the skills a business person requires to combine and manage the other three factors of production successfully
  • The income of land is rent
  • The income of labour is wage/wages
  • The income of capital is interest
  • The income of enterprise is profit
  • Factor mobility is the ease by which factors of production can be moved from one place to another.
  • Occupational mobility is the ability to move factors between one productive task to another. For example, a worker who can move from one job to another.
  • Geographical mobility is the ease by which factors of production can move from one place to another. For example, oil is a geographically mobile factor because it is relatively easy to transport to different places.
  • Many workers are occupationally immobile because they have specific skills. For example, a lawyer cannot become a train driver overnight. They need time to gain the specific skills.
  • Workers may be geographically immobile because they have close family ties and may not wish to leave them.
  • Workers may be geographically immobile because of the cost of houses, or because moving may be expensive
  • Moving FOPs to more productive activities from less productive activities will increase their total output of goods and services.
  • Occupational mobility allows FOPs to move into their best possible uses and not waste resources
  • Occupational mobility allows firms to change the types of goods and services they produce as human wants and needs change.
  • Land quantity can be increased by an increase in rent which pushes farmer to release their land into productive uses.
  • Land quantity can be increased by planting and growing more trees and plants.
  • Land quality can be increased by fertilizers and better land management which can allow more crops to be grown
  • Land quality can be increased by new technologies that could improve the resilience of plants to drought and insect infestation
  • Labour quantity can be increased by an increase in wages.
  • Labour quantity can be increased by an increase in the population of working age. (Pushing back the retirement age, for example)
  • Labour quality can be increased by providing good quality education and training which can improve workforce skills and and increase the amount of goods and services being produced.
  • Capital quantity can be increased by a decision by producers to produce more capital goods.
  • Capital quantity can be increased by an increase in interest payments which will increase the amount of capital investors are willing to supply to firms
  • Capital quality can be increased by advances in technology
  • Enterprise quantity can be increased by an increase in the prices consumers are willing to pay for goods and services which might prompt people to start firms
  • An increase in enterprise might be because there is a fall in the number of paid jobs and unemployment begins to rise.