1.2 The Nature And Purpose Of Economic Activity

Question 1

What is the purpose of economic activity?

Answer 1

• To produce goods and services which satisfy consumer needs and wants.
• This requires using resources (inputs in the form of the factors of production) to
  produce outputs (the goods and services)

Question 2

What are the 4 factors of production?

Answer 2

• Capital
• Enterprise
• Land
• Labour

Question 3

What are the three decisions economists have to make about how to use scarce resources?

Answer 3

• What is to be produced?
• How should it be produced?
• Who will benefit from the goods and services produced?

Question 4

What is to be produced?

Answer 4

• The government and private sector is faced with this decision
• They also have to consider how much of each good is to be produced.
• Due to the problem of opportunity cost, they have to be careful about the decisions made.

Question 5

Define opportunity cost

Answer 5

• It is the next best alternative forgone

Question 6

How should it be produced?

Answer 6

• This considers how the goods and services produced will be distributed.
• The rewards from each factor of production are considered.
• Firms aim to minimise costs and maximise profits, so production needs to be efficient.
• They will consider how much each factor of production costs and how productive it is.
• This will help them decide between labour intensive production and capital intensive production.

Question 7

Who will benefit from the goods and services produced?

Answer 7

• Consumers who have purchasing power can benefit from the goods and services produced.
• Those who are willing and able to pay the price charged for a good or service will get the good or service.