• Created by: Jess
  • Created on: 21-04-14 10:16

Economics: the study of how to allocate scarce resources in the most effective way

  • Economic problem: how to allocate scarce resources among alternative uses
  • Household: group of people whose spending decisions are connected
  • Want: anything you would like, irrespective of whether you have the resources to purchase it
  • Scarcity: a situation where there are insufficient resources to meet all the wants
  • Choice: the selection of appropiate alternatives
  • Opportunity cost: the cost of the next best alternative forgone when a choice is made 

Factor of production: the resource inputs that are available in an economy for the production of goods (tangible products) and services (intangible products)

  • Land: natural resources in an economy
  • Labour: the quantity and quality of human resources 
  • Capital: man-made aids to production e.g. machinery 
  • Entrepreneurship: the willingness of an entrepreneur (someone bears the risks of the business and who organises production) to take risks and organise production 
  • Factor endowment: the stock of factors of production
  • Production: the output of goods and services

Specialisation (the concentration by a worker/workers/firm/region/economy on a narrow range of goods and services) and exchange (the process by which goods and services are traded)

Benefits of specialisation:

  • increase in the output of goods and services: when compared to circumstances where each country has to provide itself with everything it needs
  • widening of the


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