1.1 The economic problem

Question 1

Economic and Free goods.

Answer 1

Economic goods, benefit society have the problem of scarcity and have an opportunity cost. since they are scarce they have some value so consumers will pay for them and they can be traded.

free goods have no opportunity cost because there is no scarcity of the good. these goods are not traded as they are freely available. for example air and water.

Question 2

Scarcity

Answer 2

the basic economic problem is scarcity. wants are infinite and resources are finite. resources have to be used and distributed optimally.
scarcity refers to the shortage of resources in relation to the quantity of human wants.

Question 3

positive and normative statements.

Answer 3

positive statements are objective. they can be tested with factual evidence and can be consequently rejected or accepted.
normative statements are based on value judgements. these are subjective and based on option rather than facts.

Question 4

factors of production

Answer 4

capital: goods which can be used in the production process.