A1: Nature Of Economics

Question 1

What is the ‘Economic Problem’?

Answer 1

The problem is scarcity: wants are unlimited and resources are finite, so choices have to be made.

Question 2

What is ‘Opportunity Cost’?

Answer 2

The cost of the next best alternative foregone when a choice is made.

Question 3

How is opportunity cost important to producers?

Answer 3

E.g. producers may have to choose between hiring new workers or investing in new machinery.

Question 4

How is opportunity cost important to consumers?

Answer 4

E.g. consumers might have to choose between buying chocolate or crisps.

Question 5

How is opportunity cost important to the government?

Answer 5

E.g. government may have to choose between increasing spending on the NHS or increasing spending on Education.

Question 6

What choices have to be made when producing goods?

Answer 6

1. WHAT to produce: consumers tell producers what they prefer by demanding goods
2. for WHOM to produce for: whoever has the greatest purchasing power in the economy, and therefore will be able to afford the good
3. HOW to produce: producers aim in maximising their profits while minimising their costs

Question 7

What are the 4 Factors of Production?

Answer 7

1. Land
2. Labour
3. Capital
4. Enterprise

Question 8

What are PPFs (Production Possibility Frontiers)?

Answer 8

They show…

1. The maximum possible production of two goods/services with given factors of production at a certain period of time
2. The various combination of 2 goods/services that can be produced within given factors of production at a certain period of time
3. Illustrates opportunity cost

Question 9

What is meant by ‘markets’?