1.1.3 Basic economic problem

Question 1

Define scarcity

Answer 1

Scarcity arises from the basic ecnomic problem where resources become in short supply due to the unlimited wants yet with resources being limited.

Question 2

What is the basic economic problem?

Answer 2

This is where individuals/households have unlimited wants but there are only a finite amount of resources leading to the problem of scarcity.

Question 3

What does the problem of scarcity mean for firms?

Answer 3

As a result of the basic economic problem firms must decide how to efficiently allocate their resources (factors of production) in order to maximise profits and meet demand to achieve market equilibrium and allocative efficiency.

Question 4

Define opportunity cost

Answer 4

The next best alternative foregone.

Question 5

Define marginal analysis

Answer 5

An economic analysis based on any additional costs or benefits