Economics Unit 1

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  • Created by: Saj Atwal
  • Created on: 04-03-14 19:24

Economics Unit 1 - Card 1

The Central Economic Problem

Defintion: "The economic problem is that only a limited amount of resources are avilible to produce the unlimited quantity of goods and services people desire."

Resources are finite

Incomes are limited

Choices have to be made

Factors of production: Land, Labour, Capital and Enterprise.

Land: Land itself as well as ALL the goods extracted from the world

Reward or payment is rent.

Renewable resources - able to be replenished over time

Non-renewable resources - likely to run out

Labour: Includes all the potential workforce; the physical people and their skills/abilities/intelligence

The reward or payment is wages

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Economics Unit 1 - Card 2

Capital: The stock of goods used to make other goods and services

Capital goods (^) Capital - money

Firm needs capital (money) what its spent on is the capital

The reward or payment is interest

Enterprise: The risk takers, the "movers and shakers" that organise/make production happen.

Catalysts for action because they take risks

The reward or payment is profit.

National economy must make choice, use resources avilable to produce:

1. Consumer goods

Enable consumers to meets needs and wants

EG: Washing machine/iPod (Durable)

       Chocolate/soap (Non-Durable)

Known as Final Goods

Purchase of these is Consumption

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Economics Unit 1 - Card 3

2. Capital Goods

Used to produce other goods

EG: A machine to produce plastic bottles

Raw materials eg: Oil

Purchasing of these is Investement

PPF shows maximum possible output that can be achieved

More capital goods = faster economic growth this means less consumer goods produced

Not all resources being used = shrinking PPF

Productive efficiency = Firm operates at min. average total cost, producing max. possible output from inputs - Not doing this would be wasting resources.

Any point on the PPF boundary is productively efficient.

Opportunity Cost: The cost of the next best alternative sacrificed or foregone

To operate on the PPF boundary increasing output of one type of a product, reducing output of another is necessary.

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