1. BASIC ECONOMIC PROBLEM & RESOURCE ALLOCATION

Question 1

Fundamental economic problem

Answer 1

Scarcity, unlimited wants, limited resources

Question 2

Opportunity cost

Answer 2

Next best alternative foregone when making an economic decision

Question 3

3 main basic economic questions

Answer 3

What to produce
For whom to produce
How to produce

Question 4

Positive statements

Answer 4

Based on scientific/ factual evidence
No valued judgement involved

Question 5

Normative statements

Answer 5

Not based on scientific/ factual evidence
Subjective & valued judgement involved

Question 6

Short run

Answer 6

A period during which at least one factor of production is fixed, cannot increase some FOPs in such short time (e.g construction of new building, investments on machinery= fixed, but labour, can always hire more)

Question 7

Long run

Answer 7

A period during which all factors of production can be adjusted

Question 8

Very long run

Answer 8

A period during which all inputs, technology & societal preferences can change

Question 9

Human capital

Answer 9

Intangible
Skill/ expertise gained through training

Question 10

Physical capital

Answer 10

Tangible
Machinery/ tools used to aid production

Question 11

Specialisation

Answer 11

Focusing on the production at a specific good where they have an advantage over others

Question 12

Advantages of specialisation

Answer 12

Increased expertise increased quality

Increased efficiency/ productivity

Effective resource allocation

Question 13

Disadvantages of specialisation

Answer 13

Limited skill diversity, occupational immobility, may lead to unemployment

Structured unemployment

Tedious boredom

Decreased quality, decrease productivity

Question 14

Market economy characteristics

Answer 14

No gov intervention involved
Allocation of resources purely done through market forces of demand & supply

Question 15

Advantages of market economy

Answer 15

Efficiency, efficient allocation of resources, as purely done through demand & supply

Optimum production, reduce waste

Increased consumer choice

Better quality & lower prices as private firms compete

Question 16

Disadvantages of market economy

Answer 16

Income inequality
- successful individuals = wealthy
- increased inequality gap

Lack of public goods as private firms aim is profit

Negative externalities as gov not involved.

Question 17

Planned economy characteristics

Answer 17

Gov controls how, what, and for whom to produce

Question 18

Advantages of planned economy

Answer 18

Decreased inequality due to
- gov regulations (e.g progressive tax)
- aims to redistribute wealth

Provision of public goods

Priority to essential services

Question 19

Mixed economy characteristics

Answer 19

Both market forces & gov intervention involved

Both public & private sectors

Question 19

Disadvantages of planned economy

Answer 19

Lack of innovation/ incentive, no profit incentives

Lack of consumer choice as all determined by gov on what to produce

No profit/ competition incentives, decrease productivity & efficiency- lower economic growth

Question 19

Advantages of mixed economy

Answer 19

Address income inequality through help of gov

More provision of public goods

Redistribution of income through
- progressive tax
- welfare initiatives

Question 19

Disadvantages of mixed economy

Answer 19

Lacks clear direction as market forces & gov intervention clashes, tension between the two

Complexity & more challenging in decision making, market forces & gov intervention slows down responsiveness to consumer demand

Question 19

PPC movement

Answer 19

Occurs when more of one good is produced only by giving up production of another

Question 19

PPC outward shift

Answer 19

Economic growth- increased production capacity

Increased GDP

Increase in living standards

Question 20

PPC inward shift

Answer 20

Economic decline/ recession- decreased production capacity

Question 20

Free goods

Answer 20

Goods that are not scarce and does not have an opportunity cost

Question 21

Private goods

Answer 21

Goods that scarce, and are excludable and rivalrous

e.g cars, clothing

Question 22

Public goods

Answer 22

Goods that are non excludable & non rivalrous