511849
Description
Mind Map by 07nelvjose, updated more than 1 year ago
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Created by 07nelvjose
almost 11 years ago
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The Economic
Problem
- Scarcity
- Infinite needs and wants but only limited resources available to
meet the needs
- Economy require the best way to allocate the
resources to maximise the benefit to the society
as a whole
- Maximising objective of each agents combined with signals of
price(rewards of factor of production) helps to allocate resources
where consumers want them most
- Adam Smith
- Invisible hand moving resources to
their best use
- Invisible hand moving resources to
their best use
- Adam Smith
- Maximising objective of each agents combined with signals of
price(rewards of factor of production) helps to allocate resources
where consumers want them most
- Opportunity Cost
- The next best alternative forgone when
an economic decision is made
- The next best alternative forgone when
an economic decision is made
- Economic Goods
- Scare and opportunity cost involved
- Scare and opportunity cost involved
- Infinite needs and wants but only limited resources available to
meet the needs
- Free Goods
- No opportunity cost involved
- E.g. Air
- E.g. Air
- No opportunity cost involved
- Economic Resources
- Factors of Production
- Land
- Reward:Rent
- Reward:Rent
- Labour
- Reward:Wages
- Reward:Wages
- Capital
- Reward:Interest
- Reward:Interest
- Enterprise
- Reward:Profit
- Reward:Profit
- Factor Market
- Markets where factors of
production are bought and
sold
- Markets where factors of
production are bought and
sold
- Land
- Factors of Production
- Objectives of individuals, firms and
government
- Individuals
- Rational consumers
- Decisions based on maximising our
own welfare
- Rational consumers
- Workers
- Higher wages
- Better working conditions
- Job security
- Higher wages
- Firms
- Maximise profits
- Maximise profits
- Government
- Political Objective
- Chances of re-elected
- Political Objective
- Individuals
- Free market economy
- Limited intervention of the government
- High prices
- Indicates profits
- Signals higher output or new firms
entering the market
- E.g. Rise in oil prices
- Consumers tend to ration more
- Development of new oilfields in tougher environments
- Supply increased due to higher profit incentive
- Supply increased due to higher profit incentive
- Consumers tend to ration more
- E.g. Rise in oil prices
- Signals higher output or new firms
entering the market
- Incentive Function
- Rationing function
- Signalling function
- Indicates profits
- Limited intervention of the government
- Assumption
- Assume consumers wants to maximise their
own satisfaction
- Assume firms want to maximise profit
- Assume consumers wants to maximise their
own satisfaction
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