1.1 the economic problem

Question 1

what is the basic economic problem?

Answer 1

Humans have unlimited needs and wants but resources are scarce and finite.

Question 2

what is scarcity?

Answer 2

scarcity refers to the shortage of resources in relation to human wants.

Question 3

what is an economic good?
what is a free good?

Answer 3

economic good- benefit society and have the problem of scarcity as a result, they command some value in the market.
free good- they have no opportunity cost as they and not scarce and are readily available e.g air

Question 4

what is a positive statement?
what is a normative statement?

Answer 4

positive- objective and can be tested with factual evidence therefore can be accepted or rejected.
normative- based on value judgments and opinions therefore subjective.

Question 5

what are the economic agents?

Answer 5

governments- act on behalf of consumers
firms- aim to maximise profits
households- maximise utility

Question 6

what are the factors of production and their reward/incentive?

Answer 6

land (natural resources)- rent
labour (human capital)- wages
capital (physical goods)-interest
entrepreneurship-profit

Question 7

explain rationality

Answer 7

1) identify the problem
2)identify criteria
3)weigh criteria and alternatives
4) carry out the decision

individuals make choices based on their own self-interest, carefully weighing the costs and benefits of each option to maximize their personal utility (happiness), essentially choosing the option that best aligns with their goals and preferences in a logical manner; it implies a consistent and predictable decision-making process without significant influence from emotions or irrational factors.