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.