1.1.3 The economic problem

Question 1

What is the economic problem? Elaborate.

Answer 1

Scarcity. Demands are infinite, resources are finite and limited. Resources are scarce in relation to the demand placed upon them.

Question 2

Give examples of scarcity

Answer 2

Water in China and India.
Food shortages around the world.

Question 3

Renewable resources

Answer 3

Resources of economic value that can be replenished or replaced at a level equal to consumption.

Question 4

Non-renewable resources

Answer 4

Resources of economic value that cannot be replaced by natural means on a level equal to consumption.

Question 5

Opportunity cost

Answer 5

The cost of one thing in terms of the next best option which has been given up.

Question 6

Four factors of production

Answer 6

Land
Labour
Capital
Entrepreneurship

Question 7

Land

Answer 7

All natural resources used in production (raw materials, minerals, land and produce of the sea)

Question 8

Labour

Answer 8

All productive human effort, both physical and mental, paid or unpaid.

Question 9

Capital

Answer 9

All man-made resources that are used to produce goods or services in the future. Owners of capital receive interest on their land.

Question 10

Entrepreneurship

Answer 10

The willingness and ability to take the risks of combining the other three factors of production in order to make a product or service. Successful entrepreneurs earn a profit from their activities.