1.1.2 The basic economic problem

Question 1

Basic economic problem

Answer 1

Scarcity - infinite wants and needs but finite resources

Question 2

What is assumed with the basic economic problem?

Answer 2

People are rational and choose the options which maximises utility

Question 3

Consumers seek to maximise…

Answer 3

Utility

Question 4

Firms seek to maximise…

Answer 4

Profits

Question 5

Governments seek to maximise…

Answer 5

Welfare

Question 6

What are needs?

Answer 6

Things required for survival
e.g. food, shelter

Question 7

What are wants?

Answer 7

Things that are desirable, but not necessary for survival.

e.g. smartphones, cars, holidays

Question 8

What are goods?

Answer 8

Physical products you can touch, such as washing machines, books or tables.

Question 9

What are services?

Answer 9

Intangible things such as medical check-ups, teaching or train journeys.

Question 10

What are the different economic agents?

Answer 10

• Producers / firms
• Consumers
• Governments

Question 11

What are the three fundamental economic questions?

Answer 11

1) What to produce?
2) How to produce it?
3) Who to produce it for?