Questions and Answers
Distinguish between economic goods and free goods.
A free good is a good with zero opportunity cost, produced without effort in unlimited quantities (e.g., oxygen, water). An economic good has utility, scarcity, and an opportunity cost.
Explain what is meant by the basic 'economic problem'.
The basic economic problem refers to the conflict between unlimited wants and limited resources, necessitating choices regarding production.
Distinguish between normative and positive statements.
A positive statement describes facts (e.g., effects of higher tax), while a normative statement involves value judgments (e.g., whether to raise taxes).
Distinguish between 'needs' and 'wants'.
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Explain what is meant by 'scarcity'.
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Explain the role of economic agents: Government, Firms, Households.
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What are the three economic questions?
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Explain the nature and role of the different factors of production as economic resources.
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Explain the rewards to the factors of production.
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Study Notes
Economic Goods vs. Free Goods
- Free goods have zero opportunity cost and can be produced in unlimited quantities, e.g., oxygen and water.
- Economic goods carry utility and scarcity, meaning they have an opportunity cost and are limited in availability.
Basic Economic Problem
- The basic economic problem arises from unlimited wants and limited resources, necessitating choices.
- Scarcity requires prioritization in production due to resource limitations.
Implications of the Basic Economic Problem
- Not addressed in the provided text; consideration needed for further evaluation.
Normative vs. Positive Statements
- Positive statements are objective and based on facts (e.g., effects of tax changes).
- Normative statements include value judgments and subjective opinions (e.g., whether to raise taxes on cigarettes).
Needs vs. Wants
- Needs are essential goods/services required for survival (e.g., food, shelter).
- Wants are non-essential goods/services desired by individuals (e.g., luxury items like an iPad).
Understanding Scarcity
- Scarcity is the conflict between unlimited wants and limited resources, forcing prioritization in consumption.
- Governments face choices regarding resource allocation, exemplified by land use decisions like rainforest deforestation.
Problem of Scarcity and Choice
- Not addressed in the provided text; evaluation examples needed.
Impact of Sustainability on Scarcity and Choice
- Not addressed in the provided text; further explanation required.
Role of Economic Agents
- Households determine consumption expenditures based on labor supply.
- Firms produce goods and decide production methods, impacting economic dynamics through pricing strategies.
- Governments oversee resource allocation and regulatory frameworks in the economy.
Three Economic Questions
- What to produce?
- How to produce?
- For whom to produce?
Factors of Production
- Four key factors:
- Labour: Human resources with varied skills crucial for production.
- Capital: Tools and machinery used in producing goods.
- Land: Natural resources and physical space for production.
- Entrepreneurship: Skill in organizing and managing factors of production.
Rewards to Factors of Production
- Labour receives compensation in wages/salaries.
- Capital earns profits, while land generates rent.
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Description
Explore the distinctions between economic goods and free goods with these flashcards. Understand the concepts of opportunity cost, scarcity, and utility in economics. Perfect for students looking to deepen their understanding of basic economic principles.
