2-The Economic Problem

Question 1

Define the Economic problem

Answer 1

Scarcity, resources are finite and human wants are infinite

Question 2

What are the 3 fundamental economic questions?

Answer 2

What to produce?
How to produce?
For whom to produce?

Question 3

Define Opportunity Cost

Answer 3

Next best alternative forgone

Question 4

Who are economic agents?

Answer 4

• Consumers aim to maximize their utility (from consumption).
• Firms aim to maximize their profits.
• Government aim to maximize welfare of the society

Question 5

What are the factors of production?

Answer 5

—> Land - Includes all natural resources.
—> Labor - Workers in the production process.
—> Capital - Man-made resources in the production. (Machine)
—> Enterprise- Individuals that take business risk to arrange other factors of production to produce a good. They enjoy all profits or bear all losses. (Entrepreneurs)

Question 6

Define Renewable/Sustainable resources

Answer 6

Replenishes naturally, infinite resource. ( solar energy, wind power, forestry, hydro)

Question 7

Define Non-Renewable/Unsustainable resources

Answer 7

These will eventually be exhausted upon continued consumption. (fossil fuel - coal, oil, natural gas)

Question 8

Define Sustainability

Answer 8

Use at rate that will ensure its availability for future generations

Question 9

Define Economic good

Answer 9

Production uses Scarce resources and their consumption has opportunity cost

Question 10

Define Free good

Answer 10

Abundant in supply and their consumption has no opportunity cost. (sunlight, air)