Please enable JavaScript.
Coggle requires JavaScript to display documents.
Unit 1: Basic Economic Ideas and Resource Allocation - Coggle Diagram
Unit 1: Basic Economic Ideas and Resource Allocation
Opportunity cost
The fundamental economic problem
Scarce resources
Labour
Capital
Land
Enterprise
Consumers, firms and governments must make a choice
What to produce?
How to produce?
For whom to produce?
Unlimited wants
Needs
The cost expressed in terms of the next best alternative
Scarcity
A situation where wants and needs are greater than the resources available
Resource allocation in different economic systems
Mixed
Contains elements from both the private sector and public sector
The only one that exists in real life
Private ownership of most resources
Planned
Role of government
Central role in all decisions
Control production
Determination of wages
Ownership of majority of productive resources
Price control
Advantages
Disadvantages
Market
Disadvantages
Role of government
Watch what is happening and only intervene when the price mechanism does not provide the best allocation of resources
Advantages
Price mechanism
Firms less willing to supply
Increase in price
Fall in price
More firms willing to supply
Excess supply from firms
Increase in supply
Economic methodology
The study of econoomics
Microeconomics
Macroeconomics
Social science
Statements
Positive
Normative
Ceteris parabus
Time periods
Long run
Very long run
Short run
Factors of production
Labour
Quality
Vital for economic progress
Quantity
Limitations
Cultural
Age
Specialisation
People focus on what they have an advantage in - more goods are produced
No one is self- sufficient
Division of Labour
Increase in output per workerRw
Dissatisfaction
Reward - wages
Capital
Physical
Man made items to aid the production of goods and services
Reward - Interest
Land
Climate
The land itself
Soil for agriculture
Vegetation
Trees
Rivers and lakes
Mineral deposits - oil and coal
Reward is rent
Enterprise
Human capital
Organises other factors of production
Reward - Profit
Production possibility curves
Changes
Movement along the curve
The quantities/ proportions of products being produced changes
Changes in wants and needs
Shifts
Left
Technological progress falls
Political conflicts
Overpopulation
Decrease in productive capacity
Right
Immigration
Advances in technology
Increase in productive capacity
Importing or discovering more land and capital goods
Trade off
Process of deciding whether to give up one good in order to obtain more of another
Purpose
Shows choices available
Shows how resources are allocated
Can help show trends by showing changes and shifts over time
Shows the productive capacity of an economy
Increasing opportunity costs
Shown by the curve into the axis
Some resources are more suited to producing one good than another
Classification of goods and services
Excludability
Where you can stop someone from consuming a good or service
Rivalry
Where consumption of the good reduces the availability for others
Public goods
Non excludable
Non rival
Free rider problem
Examples
Fire protection, police force, national security, street lighting, traffic lights and flood control systems
Goods
Merit
Demerit
Information failure
Private goods
Involve a cost - economic
Scarce
Rival
Consumed by one person and not available to anyone else
Excludable