Economics Mind Map 1

Economics Mind Map 1

1. The Basic Economic Problem

   • Unlimited human wants and finite resources cause important decisions/choices
   • Four Factors of Production
     • Land
       • All naturally occurring resources
         • Forest
         • Oil
       • Method of income: Rent
     • Labour
       • All human effort
       • Transformation of raw materials into consumer goods
       • Method of income: Wages
     • Capital
       • Used for production of consumer goods
       • Factory machinery
       • Method of income: Interest
     • Enterprise
       • Entrepreneurs with ideas can take risks
       • Method of income: Profit
   • Production Possibility Frontiers
     • Opportunity Cost - Next best alternative forgone
   • What? Consumer Sovereignty How? Private Enterprise Who? Willing and able to pay

2. Market Mechanism

   • Supply
     • Positive gradient shows that producers want to sell products at higher prices because unit cost of production stays unchanged
     • Shift increase/decrease caused by factors other than price
       • Unit cost of production
       • Productivity gains
       • VAT/Excise Duty
       • Government Regulations
       • Subsidies
   • Demand
     • Measures quantity of a good that will be purchased in a given time period, given that consumers are willing and able to buy it
     • Negative gradient shows the inverse relationship between price and quantity demanded
     • Shift increase/decrease of demand curve caused by factors other than price
   • Ceteris Paribus: All other factors remain constant
   • Extension/Contraction caused by price change