1.1.3 The Economic Problem

Question 1

what is the economic problem

Answer 1

there are scarce resources and infinite wants so choices have to be made

Question 2

define scarcity

Answer 2

there are insufficient resources to provide all the goods and services to meet our infinite wants

Question 3

define needs and give examples

Answer 3

goods that are necessary for survival
needs are limited
e.g water, food, shelter

Question 4

define wants and give examples

Answer 4

goods that are not essential for survival but make our lives more comfortable
wants are unlimited
e.g larger car, luxury holidays

Question 5

define factors of production

Answer 5

resources used in the production process, the inputs into production used to produce output in an economy

Question 6

define land

Answer 6

the natural resources used in the production process

Question 7

define labour

Answer 7

includes all human resources which make up the workforce

Question 8

define capital

Answer 8

human made aids to production

Question 9

define enterprise

Answer 9

the organisation of the other factors of production.
bears the risk of the activity and identifies projects to be undertaken

Question 10

what are three main ways resources can be classified

Answer 10

human resources, produced resources and natural resources

Question 11

define renewable resources

Answer 11

resources which can be replenished, so the stock level of the resources can be maintained over a period of time

Question 12

what assumption is made when classifying a renewable resource

Answer 12

that the rate of consumption is less than the rate of replenishment

Question 13

define non-renewable resources

Answer 13

resources which cannot be replenished, so the stock level decreases over time as it is consumed

Question 14

give an example of a choice consumers must make as a result of the economic problem

Answer 14

individuals have a limited income and have to make decisions on what purchases to prioritise

Question 15

give an example of a choice firms must make as a result of the economic problem

Answer 15

firms have limited profits and have to decide where to invest

Question 16

give an example of a choice the government must make as a result of the economic problem

Answer 16

governments have limited tax revenue and again have to make choices on where to prioritise public spending

Question 17

define opportunity cost

Answer 17

the next best alternative forgone when a choice is made

Question 18

why are opportunity costs useful

Answer 18

can lead to better choices being selected if we really weight up all the choices available

Question 19

define economic goods

Answer 19

goods that are created from resources that are limited in supply. all such goods carry a price that reflects their scarcity

Question 20

give examples of economic goods

Answer 20

jewellery, furniture

Question 21

define free goods

Answer 21

goods that have unlimited supply and therefore consumption by one does not limit consumption by others
free goods carry zero price

Question 22

is there an opportunity cost involved in the consumption of free goods

Answer 22

no

Question 23

give examples of free goods

Answer 23

air, rainwater

Question 24

which three questions arise from the economic problem

Answer 24

what to produce and in what quantity?
how should the goods and services be produced?
who should the goods be allocated to?