Topic 1 : Basic economic ideas
and resource allocation
What is the fundamental economic problem?
a situation where there are not enough resources to satisfy all human needs
and wants
What is scarcity and how does it link to choices?
a situation which wants and needs are in excess of the resources available
due to scarcity and unlimited wants, we need to make choices
What is opportunity cost?
the cost expressed in terms of the next best alternative forgone
What are the importance of opportunity costs?
opportunity costs means we have to make decisions about best use of time,
resources
sometimes 2 options are good, but we need to choose the relative best
option
Topic 1 : Basic economic ideas and resource allocation 1
, What are the 3 basic economic problem?
what will be produced
how it will be produced
for whom it will be produced
What is meant by ceteris paribus?
it means all other things being equal
What is meant by margin?
the point which the last unit of a product is produced or consumed
What is short run?
where 1 FOP is fixed, eg: capital
time period: less than 6 months
What is long run?
where all main FOP are variable
time period: greater than 6 months
eg: can build a bigger factory, firms can enter or leave the market
What is very long run and examples?
where technology and factors are beyond the control of the firm can change
significantly
eg: government policies may change, new technology
What is a positive statement and example?
a statement which is factual and objective
eg: In 2015, the inflation rate in the UK was 0.5%
What is a normative statement?
a statement which is subjective and expresses a value judgement
eg: It is unfair that student have to pay for tuition fees
What are the 4 factors of production?
land: raw materials, eg: coal, fish, wood
labour: workers able to participate in productive process
Topic 1 : Basic economic ideas and resource allocation 2
and resource allocation
What is the fundamental economic problem?
a situation where there are not enough resources to satisfy all human needs
and wants
What is scarcity and how does it link to choices?
a situation which wants and needs are in excess of the resources available
due to scarcity and unlimited wants, we need to make choices
What is opportunity cost?
the cost expressed in terms of the next best alternative forgone
What are the importance of opportunity costs?
opportunity costs means we have to make decisions about best use of time,
resources
sometimes 2 options are good, but we need to choose the relative best
option
Topic 1 : Basic economic ideas and resource allocation 1
, What are the 3 basic economic problem?
what will be produced
how it will be produced
for whom it will be produced
What is meant by ceteris paribus?
it means all other things being equal
What is meant by margin?
the point which the last unit of a product is produced or consumed
What is short run?
where 1 FOP is fixed, eg: capital
time period: less than 6 months
What is long run?
where all main FOP are variable
time period: greater than 6 months
eg: can build a bigger factory, firms can enter or leave the market
What is very long run and examples?
where technology and factors are beyond the control of the firm can change
significantly
eg: government policies may change, new technology
What is a positive statement and example?
a statement which is factual and objective
eg: In 2015, the inflation rate in the UK was 0.5%
What is a normative statement?
a statement which is subjective and expresses a value judgement
eg: It is unfair that student have to pay for tuition fees
What are the 4 factors of production?
land: raw materials, eg: coal, fish, wood
labour: workers able to participate in productive process
Topic 1 : Basic economic ideas and resource allocation 2
