Flashcards in BASIC Microeconomics IDEAS Deck (26)
Factors of production
The resources used in the production of goods and services
The natural occurring and human-made items in an economy
Resources are scarce but wants are infinite
when resources are limited in supply
desires, not needed for survival
essential for living
all other things being equal / other things held constant / all else unchanged
the reward to the factors of production
natural resources in production - oil, livestock
factor income: rent
workers and their skills
factor income: wages
a project or undertaking, typically one that is difficult or requires effort.
- entrepreneur: the person that organises production and is willing to take risks
- factor income: profit
human-made aids to production
replaced at a rate equal to or quicker than consumption
cannot be replaced at a rate equal to its consumption
primary sector + secondary + tertiary
extraction of natural resources
manufactoring and assembly
at least one FOP does not change
all FOPs can change
very long run
change in technology
A free good is a good with zero opportunity cost. This means it can be consumed in as much quantity as needed without reducing its availability to others
- Not scarce
- No opportunity cost
- No market price
- etc. air, sunlight
goods and services are produced which satisfy consumers needs and wants directly
- Opportunity cost
- Market price
- etc. food, clothing
good or service that is provided without profit to all members of a society, either by government or a private individual or organisation
- Non-rivalry (non-diminishing) - consumption by one person does not reduce availability for others.
- Non-excludable - non-paying consumers cannot be prevented from consuming the product.
- Non-rejectable - everyone consumes, whether they want to or not.
- etc. street lighting, lighthouses, fireworks display, national defence.
- private good
- external benefits
- one that has positive side effects when consumed
- underproduced and under-consumed due to information failure (consumers are not fully aware of the effects).
- better for a person than the person that may consume the good realises
- etc. education, healthcare.
- Government intervention: subsidies, laws & regulations, provide information.
- private good
- external costs
- one that has negative side effects when consumed
- habit-forming, relatively cheap and readily avaliable
- due to information failure (consumers are not fully aware of the effects).
- etc. alcohol, cigarettes.
- Government intervention: tax, laws & regulations, provide information.
an item that yields positive benefits to people
- Rivalry (diminishing) - consumption by one person reduces availability for others.
- Excludable - can prevent people who have not paid from consuming the product.
- Rejectable - people do not have to consume if they don’t want to.
- etc. clothing, food
public goods are provided by
the government due to the free-rider problem:
- Due to non-excludability, consumers have no incentive to pay.
- Private firms cannot charge a price and therefore can not make revenue or profit.
- Therefore, private sector will not provide the public good.