4.1.1.2 the nature and purpose of economic activity

Question 1

what is the purpose of economic activity?
and what does this require?

Answer 1

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

Question 2

economists have to make decisions about how to use scarce resources
what three questions do they ask?

Answer 2

• what is produced
• how should it be produced
• who will benefit from the goods and services produced

Question 3

how is the question ‘what is to be produced’ answered?

Answer 3

• 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 this problem of opportunity cost, they have to be careful about the decisions made

Question 4

how is the question ‘how should it be produced’ answered?

Answer 4

• this considers how the goods and services produced will be distributed
• the reward from each factor of production are considered
• firms aim to minimise costs and maximise profits, so production needs to efficient
• they’ll consider how much each factor of production costs and how productive it is
• this’ll help them decide between labour intensive production and capital intensive production

Question 5

how is the question ‘who will benefit from the goods and services produced’ answered?

Answer 5

• 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/service will get the good/service