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Key Concepts in Economics Overview

Jun 4, 2025

SQA Higher Economics Flashcards Notes

Key Economic Concepts

Factors of Production:

  • Land: Natural resources used to create goods and services.
  • Labour: Physical and mental effort used in production.
  • Capital: Tools, equipment, machinery, and factories used in production.
  • Enterprise: The entrepreneur who combines other factors and takes risks.

Basic Economic Concepts:

  • Scarcity: Unlimited wants exceed limited resources.
  • Wants vs. Needs:
    • Wants: Desirable but not necessary for survival.
    • Needs: Basic requirements for survival.
  • Opportunity Cost: The next best alternative forgone when making a decision.

Types of Goods:

  • Free Goods: Unlimited supply, no opportunity cost, no price.
  • Economic Goods: Command a price, use scarce resources, incur opportunity cost.

Economic Systems

Types of Economies:

  • Free Market Economy: Prices not controlled by the government.
  • Planned Economy: Centralized government control over production and allocation.
  • Mixed Economy: Combination of private enterprise and government regulation.

Economic Agents:

  • Consumer, Business, and Governments involved in economic transactions.

Economic Problems and Questions

  • Basic Economic Problem: Mismatch of unlimited wants and limited resources.
  • Economic Questions:
    • What to produce?
    • How to produce?
    • For whom to produce?

Economic Efficiency and Equity

  • Economic Efficiency: Wise use of resources for maximum benefit.
  • Equity: Fairness in economic dealings.
  • Productivity: Output from each unit of labor input.

Market Concepts

  • Market: A place where buyers and sellers agree on a price to exchange goods/services.
  • Market Equilibrium: Price where quantity demanded equals quantity supplied.
  • Shortage: Temporary situation where demand exceeds supply.

Specialized Economic Concepts

  • Specialization: Focusing on a limited number of productive activities.
  • Division of Labor: Splitting work into distinct tasks.
  • Effective Supply and Demand:
    • Effective Supply: Willingness and ability of producers to supply at a price.
    • Effective Demand: Willingness and ability to purchase a product.

Returns to Factors of Production

  • Rent: Payment for use of natural resources.
  • Wages: Payment for labor.
  • Interest: Payment for capital.
  • Profit: Payment for enterprise.

Production and Resource Use

  • Production: Creating goods and services.
  • Resource Substitution: Using alternative resources in production.
  • Capital-Labour Substitution: Replacing labor with machines to increase productivity, potentially causing structural unemployment.

Derived Demand

  • Demand for industrial products/services driven by consumer demand for products/services.