Ch1&2 - the economic problem and economic assumptions

Cards (18)

  • Unlimited wants
    People's desire for goods and services e.g. more holidays abroad, a better house, a bigger car, better education, improved health care
  • Finite (limited) resources
    Resources that are scarce or limited
  • Needs
    Basic requirements for human survival include water, food, warmth, shelter and clothing
  • Wants
    People's desire for goods and services e.g. more holidays abroad, a better house, a bigger car, better education, improved health care
  • Basic economic problems occur because the world's resources are scarce or finite and people's wants are infinite
  • Demand for resources is greater than their supply
  • Decisions that have to be made to overcome economic problems
    1. What to produce?
    2. How to produce?
    3. For whom to produce?
  • Opportunity cost
    The cost of the next best alternative given up
  • Capital goods
    Those purchased by firms and used to produce other goods such as factories, machinery tools and equipment
  • Consumer goods
    Those purchased by household such as food, car, tablets confectionery
  • Production possibility curves (PPCs)
    Show the different combinations of two goods that an economy can produce if all resources are used up
  • Reasons for economic growth
    • New technology
    • Improved efficiency
    • Education and training
    • New resources
  • If PPC shift inwards
    This would represent negative economic growth (where a country's productive potential actually falls)
  • Reasons for negative economic growth
    • Resource depletion
    • Adverse weather patterns
    • Skilled workers moving overseas
  • Underlying economic assumptions are that consumers aim to maximise their benefit and businesses aim to maximise their profit
  • Reasons why consumers may not maximise their benefits
    • Consumers are not always good at calculating their benefits
    • Consumers have habits that are hard to give up
    • Consumers sometimes copy others' behaviour
  • Reasons why producers may not maximise their profit
    • Producers may have managers that revenue maximise or sales maximise
    • Producers may prioritise caring for customers
    • Producers may complete charitable work
  • Production possibility curves (PPCs)
    • Show the maximum quantity of goods that can be produced
    A) outside PPC curve
    B) negative economic growth