1.1 The economic problem

Question 1

Name 3 characteristics of an Economic Good?

Answer 1

-Benefit Society
-Problem of scarcity
-Have an opportunity cost

Question 2

Name 3 characteristics of a Free Good.

Answer 2

-Have an opportunity cost
-No scarcity
-Not traded because they are freely available e.g, air and water.

Question 3

What is the basic economic problem?

Answer 3

• Scarcity: wants are unlimited and resources are finite.

Question 4

What are positive statements?

Answer 4

-Objective
-Can be tested with factual evidence, therefore can be rejected or accepted.
-Look for words such as ‘will’, ‘is’.

Question 5

What is a normative statement?

Answer 5

-Based on value judgements.
-Subjective and based on opinion rather than factual evidence.
-Look for words such as ‘should’.

Question 6

What is the role of the government as an economic agent?

Answer 6

Assumed to act on behalf of consumers.

Question 7

What is the role of firms as an economic agents?

Answer 7

Assumed that firms aim to maximise their profits

Question 8

What is the role of households as an economic agent?

Answer 8

Aim to maximises their utility.

Question 9

What are the 4 factors of production and their rewards?

Answer 9

-Capital: Interest from investment.
-Enterprise: Profit
-Land: Rent
-Labour: Wages