1.1.3 the economic problem

Question 1

What are the 4 factors of production?

Answer 1

Land, labour, capital and enterprise

Question 2

What is the definition of land and its payment?

Answer 2

• Land and all natural resources eg. water, coal, gold deposits
• Rent/lease payments

Question 3

What is the definition of labour and its payment?

Answer 3

• The human workforce of an economy eg. doctors, vicars, engineers
• Wages/salaries

Question 4

What is the definition of capital and its payment?

Answer 4

• Tools, machines and resources used in production eg. raw materials, offices, tractors
• Interest

Question 5

What is the definition of enterprise and its payment?

Answer 5

• The ability to combine factors of production to produce goods and services to meet consumer wants to make profit eg. Alan Sugar
• Profit

Question 6

What are capital goods?

Answer 6

They are used to generate further output eg. machinery and buildings

Question 7

What are consumer goods?

Answer 7

Goods used by consumers/households. They can be durables (electrical goods and furniture) or non-durables (food, disposable items.)

Question 8

What is the difference between renewable and non-renewable resources?

Answer 8

Renewable resources can naturally replenish while non-renewable resources are finite.

Question 9

What is the difference between wants and needs?

Answer 9

Needs are essential for survival and wants are any extra goods/services on top of this.

Question 10

When does scarcity occur?

Answer 10

When human wants (demand) exceed what can be produced (supply).

Question 11

What is opportunity cost?

Answer 11

The next best alternative forgone/sacrificed.

Question 12

What is the basic economic problem?

Answer 12

Resources are scarce but wants are infinite, so this forces firms and governments to make choices on how to allocate resources.

Question 13

What are the 3 fundamental choices that must be made by an economy?

Answer 13

1. What to produce, they must determine the variety of goods and services it will supply and in what quantities to satisfy wants.
2. How to produce, total output is also determined by the ways in which resources are combined.
3. Who gets what (resource allocation), this relates to how output is distributed.