Basic Economic Principles

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What is scarcity?

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Scarcity is the fundamental economic problem of having seemingly unlimited human wants in a world of limited resources, necessitating choices about resource allocation.

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What are the implications of scarcity?

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Since resources are finite, individuals, businesses, and governments must decide what to produce, how to produce it, and for whom to produce it.

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What are the four factors of production?

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1. Land: Natural resources like minerals, forests, water, and land itself. 2. Labor: Human effort and skills in production. 3. Capital: Man-made resources like machinery and tools. 4. Entrepreneurship: The ability to combine other factors to create goods and services.

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Why are factors of production important?

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They are essential for producing all goods and services, and their availability and quality determine an economy's productive capacity.

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What is opportunity cost?

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Opportunity cost is the value of the next best alternative that is forgone when a decision is made.

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Give an example of opportunity cost.

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If a government decides to build a hospital instead of a school, the opportunity cost is the benefits that the school would have provided.

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What are the three basic economic questions?

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1. What to produce? 2. How to produce? 3. For whom to produce?

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What is the purpose of the three basic economic questions?

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They help determine the allocation of resources in an economy, guiding economic decision-making.

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What is positive economics?

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Positive economics focuses on describing and explaining economic phenomena using facts and cause-and-effect relationships.

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What is normative economics?

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Normative economics involves value judgments and opinions on what the economy should be like, focusing on recommendations based on values.