1.1.3: The Economic Problem

Cards (17)

  • Need: Something essential that you need to survive
  • Want: Something you desire but is not essential
  • The basic economic problem is that there are infinite wants and finite resources in an economy. Therefore choices must be made about how to allocate resources
  • Land: Natural resources
  • Labour: Work done by humans
  • Capital: Man-made resources and machinery
  • Enterprise: The combination of the other 4 factors or production with risk and the ability to organise
  • The reward for land is rent
  • The reward for labour is wages
  • The reward for capital is interest
  • The reward for enterprise is profit
  • Microeconomics studies the behaviour of individuals and firms, while Macroeconomics considers the whole economy
  • Consumers aim to maximise total utility
  • Workers aim to maximise wages and benefit from work
  • Producers aim to maximise profit
  • Governments aim to maximise social welfare
  • Opportunity cost is the value of the next best alternative forgone when making a choice