1. The basic economic problem

Question 1

The basic economic problem

Answer 1

How best to allocate scarce resources in order to satisfy people’s unlimited needs and wants

Question 2

Economic goods

Answer 2

Goods that are scarce in relationship to demand for product. Human effort is required to obtain it. (Eg oil.)

Question 3

Free goods

Answer 3

Goods that are unlimited in supply with no oppurtunity cost. Eg. Air, seawater

Question 4

Needs

Answer 4

Goods or services that are required for survival

Question 5

Wants

Answer 5

Goods or services that make people more comfortable or content but which are not necessary for survival.

Question 6

Goods

Answer 6

Physical items that can be produced and owned.

Question 7

Services

Answer 7

Non-physical items that can’t be owned. Eg. haircuts.

Question 8

Opportunity Cost

Answer 8

The loss of other alternatives when one alternative is chosen.

Question 9

Factors of Production

Answer 9

Required to produce a good or service. Captal (money, machinery), Enterprise (idea needed), Land (factory and resources that come from land eg. coal mine), Labour (to create product)

Question 10

Occupational mobility

Answer 10

The extent to which labour is able to move between jobs. Retraining and upskilling help workers to improve occupational mobility.

Question 11

Geographical mobility

Answer 11

The extent to which labour is able to move to different location for employment purposes.

Question 12

Consumer

Answer 12

People who buy or use goods and services to satisfy their wants.

Question 13

Producer

Answer 13

Someone who creates and supplies goods or services.

Question 14

Scarcity

Answer 14

The problem of unlimited wants and limited resources. Scarcity requires people to make choices and decisions about how to allocate resources efficiently to satisfy basic needs and as many wants as possible.

Question 15

GDP

Answer 15

The value of the goods and services produced within a country’s borders in one calendar year.

Question 16

PPC Assumptions

Answer 16

• Economy operating at full capacity (FoP fully used + producing max)
• Economy is efficient –> resources are used in least costly manner
• The chosen production combination of the two goods or serices is the one most wanted by society
• All resources are being used for just these two goods or services. Traditionally the PPC examined the production of either consumer or capital goods.

Question 17

Trade-off

Answer 17

An alternative sacrificed or given up for something else.

Question 18

Consequences of an outwards PPC shift

Answer 18

(Economic growth)

Often result in higher standard of living due to a higher income.

Higher income leads to greater spenind, wages, savings, profits, interest earnings, rent earnings and overall quality of life.

Greater savings lead to greater investment spending which leads to more productivity causing a positive loop.

Question 19

Three economic problems

Answer 19

What to produce?
Who to produce for?
How to produce?