Scarcity-The Central Economic Problem

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  • Scarcity-The Central Economic Problem
    • Economics
      • Definition: Economics is a social science, a study of human society and behaviour in their quest to satisfy their needs and wants
      • A study of choices that people make
      • Microecons
        • Looks at the Individual decision making units in the economy
        • The Study of Individual Markets
        • Individual firms and how their behaviour affects society
        • Definition: Microeconomics can be defined as the study of the economic behaviour of individuals and firms in different markets
      • Macroecons
        • Definition: Macroeconomics can be defined as the study of the economy as a whole, focusing on aggregate characteristics and economy-wide factors at the national level.
        • Also looks at how economic performance of one country can have multiple effects on other countries
        • Looks at how countries interact with one another through trade and globalisation
    • Scarcity arises due to limited resources and unlimited wants.
    • Economic resources are resources that can be used to produce goods and/or services.
      • Resources Factors of Production:   -Land           -Labour        -Capital         -Entrepreneurs
        • Land: Any natural resource e.g. plot of land and live stock, oil.
        • Labour: Any human resource, physical or intellectual
        • Entrepreneurs: someone who recognises profit opportunity, is able to organise the resources and is willing to accept the risk
        • Capital: All man-made physical assets used or available for production of other good.
      • Money is NOT  an economic resource as by itself it can't produce anything. It is like greese for the economy
    • As a result of scarcity, economic agents like consumers, firms and governments have to make decisions. They make decisions that maximise their own self-interest.
      • Consumers: aim to maximise utility
      • Firms: aim to maximise profits
      • Government aims to maximise social welfare
    • Opportunity cost: Net benefit of the next best alternative forgone. Incurred when choice is made
    • PPC: PPC shows all possible combinations of two goods that a country can produce within a specified time period, given the inputs and technology available.
      • explains the concepts of scarcity, choice and opportunity cost
      • Points on the PPC indicate that resources are fully and efficiently utilised. represent attainable output combinations with the given level of resources and technology.
      • Points within the PPC indicate that resources are not fully or efficiently utilised
      • Points beyond the PPC indicate unattainable output combinations
      • change in quantity of resources, quality of resources, or level of technology would result in a shift in the PPC
    • Rational-Decision Making
      • Marginal benefit (MB) = Marginal utility = The change in total satisfaction from consuming an additional unit of a good or service. Beyond a certain point of consumption, marginal utility may start to fall (diminish).
      • Economic Agents: decision-making approach serves as a guide for analysing the considerations that an economic agent could take into account.
      • Marginal cost (MC) = The change in total cost from consuming an additional unit of a good or service.
      • According to the marginalist principle, utility-maximising consumers will consume till marginal benefit = marginal cost.

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