What are economic goods
Goods that are scare and so have an opportunity cost
What are free goods
Goods that have no opportunity cost because they are not scarce
What is the basic economic problem
Scarcity - unlimited wants but resources are finite
What is scarcity
When resources are limited relative to unlimited wants.
What is a good
Tangible product that satisfies a want
What is a service
Intangible product that satisfies a want
What is a positive statement
Objective statements that can be tested using evidence
What are normative statements
Subjective statements which contain a value judgement
Role of firms
Decide what goods and services to produce
Decide how to produce (techniques of production)
Decide prices
Purchase factors of production to produce goods and services
Role of households
Decide which goods and services to consume
Decide how much labour to supply to earn income
Role of the government
Decide on taxation, expenditure, and regulation
Decide the extent of intervention in markets
What is rationality
Assumption that each economic agent acts in their own best interest
Rational assumption of each economic agent
Households: maximise utility
Firms: maximise profit
Government: maximise social welfare
What are the four factors of production
Capital
Enterprise
Land
Labour
What is land give examples and what is its reward
Natural resources used in production, e.g. oil, coal, land space
Reward is rent
What is labour , give examples and what is its reward
Human effort used in production
Examples: teachers, doctors, factory workers
Reward is wages
What is enterprise , give examples and its reward
Enterprise is the managerial ability to organise other factors of production and take risks
Examples include entrepreneurship, decision-making, and problem-solving
Its reward is profit
What is capital what are examples and what is its reward
Man-made productive assets used to produce goods and services
Examples: machinery, factories
Reward is interest
Limitations of the rational decision making model
Imperfect information
Bounded rationality - limits in time , information and cognitive ability mean people satisfice
