1.1.3 - The economic problem

Question 1

What are the factors of production?

Answer 1

. Land
. Labour
. Capital
. Enterprise for Entrepreneurs

Question 2

Explain Land (factor of production)

Answer 2

All natural resources. Its not only land. Includes natural resources in the atmosphere, below the earth and in the sea

Question 3

Explain labour (factor of production)

Answer 3

. Work force of an economy e.g. doctors, teachers

. Value of a worker is called human capital

. Education and training increases value of human capital

Question 4

Explain Capital (factor of production)

Answer 4

Manufactured stock of tools, machines, factories, offices, roads and other resources which are used in production of goods and services

Question 5

Explain Enterprise (factor of production)

Answer 5

Seeking out profitable opportunities for production and taking risks to exploit these

Question 6

Define sustainable resource

Answer 6

Can be exploited economically and will not dimish or run out

e.g. forest

Question 7

Define working capital

Answer 7

stocks of raw material, semi manufactured and finished good which are WAITING TO BE SOLD

Question 8

Define fixed capital

Answer 8

Stocks of factories, offices, plants and machinery. It is used to transforms working capital into finished products

Question 9

Define Scarcity

Answer 9

world’s resources are finite: limited amount of land, water, oil and food

Question 10

Define free goods

Answer 10

Resources that aren’t scarce.

They have NOT go an opportunity cost

Question 11

Explain basic economic problem

Answer 11

Resources are scarce but wants infinite

Question 12

Define opportunity cost

Answer 12

The benefit lost in the next best alternative. Free goods have no opportunity cost

Question 13

Two types of goods

Answer 13

Free goods

Economic goods

Question 14

Define economic goods

Answer 14

Resources which are scarce. They have an opportunity cost

Question 15

Define needs

Answer 15

minimum necessary for a person to survive

e.g. water, food, clothing

Question 16

Define wants

Answer 16

desires for the consumption of non essential goods and services

e.g. being loved, holidays, more friendship

infinite

Question 17

Define economics

Answer 17

It’s the allocation of resources - the choices that are made by economic agents

Question 18

Define economy

Answer 18

A system which attempts to solve the basic economic problem

Question 19

Define non - renewable resources

Answer 19

Land resources that can’t be replaced

e.g. coal, petrol, natural gas

Question 20

Define renewable resources

Answer 20

Land resources that can be replenished. They can be exploited over and over again.

e.g. fish stocks or forests

Question 21

Define sustainable resources

Answer 21

A renewable resource that is being economically exploited in such a way that it will not run out.

Question 22

Define human capital

Answer 22

.value of the productive potential of an individual or group of workers; its made up of the skills, talents, education and training of an individual or group.

.Increasing training and education increases value of human capital

Question 23

Two types of capital

Answer 23

Fixed capital

Working capital

Question 24

Define entrepreneurs

Answer 24

Individuals who :

. ORGANISE PRODUCTION - organise land, labour and capital in the production of goods and services

. TAKE RISKS - using money they buy factors of production to produce goods and services in hope of making profit

Question 25

Explain the rewards to the factors of production

Answer 25

. Owners of land may receive rental income or lease payments

. Entrepreneurs earn profit from their activities, through risking financial capital and organising the factors of production to produce goods and services

. Individuals find employment as workers and their are paid wages

. Owners of capital such as a machinery, factories and hospitals can earn a variety of types of incomes from renting or leasing theses physical assets. They can receive rent or lease income