The Economic Problem

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  • Created by: Lima
  • Created on: 02-10-13 12:24
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  • The Economic Problem
    • Scarcity
      • world's resources limited
      • opportunity cost
        • sacrifice of the next best alternative forgone
      • Economic goods: scarce and have an opportunity cost
      • 3 Issues
        • what to produce?
        • How to produce?
        • For whom to produce?
      • Free goods: not scarce and have no opportunity cost
    • Factors of production
      • Land
        • rent
      • labour
        • wages
      • capital
        • interest
    • Economic objective
      • Firms
      • Government
        • High economic growth
      • individuals
        • workers: want higher wages
    • Scarcity, choice and resource allocation
      • Choice
        • businesses need to choose which resources to use and how to utilise them
      • consumers
        • will choose products that maximise utility that they gain from the products they consume
      • firms
        • products that produce highest levels of profit, in great demand by consumers
      • workers
        • alter their skills and abilites so that they can meet the requirements of firm and get higher wages
    • roles and profits and prices
      • increased price means the money consumers have will buy less and will have to cut back on items poorest value for money
      • high prices indicate potential profits for for producers abd sends a signal to firms to increase output or new firms to enter market
      • functions: incentive/ rationing/ signalling
    • PPF
      • increasing output of good X means fewer resources available for good Y. Opp cost of switching resources
      • shifts to the right: -new technology, increased labour, better management of resources
    • value judgements, positive and normative statemets
      • postive: statements that can be tested against real world data
      • normative: opinions that require value judgements tobe made
      • value judgements: statements/ opinions exoresses that aren't testable or can't be verified and depends on the views of the individual and the values they hold
  • Scarcity
    • world's resources limited
    • opportunity cost
      • sacrifice of the next best alternative forgone
    • Economic goods: scarce and have an opportunity cost
    • 3 Issues
      • what to produce?
      • How to produce?
      • For whom to produce?
    • Free goods: not scarce and have no opportunity cost
  • enterprise
    • Factors of production
      • Land
        • rent
      • labour
        • wages
      • capital
        • interest
    • profit
  • To maximise profits
    • Firms
  • consumers: want to maximise own economic welfare
    • individuals
      • workers: want higher wages

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