basic economic problem

Question 1

what is the economic problem?

Answer 1

the probability of scarcity

Question 2

scarcity

Answer 2

limited resources used in satisfying unlimited human ends (wants)

Question 3

opportunity cost

Answer 3

the next best alternative forgone when making a choice.

Question 4

choice

Answer 4

the act of selecting amongst many alternatives

Question 5

land

Answer 5

any natural resource used in the production of a good or rendering of a service. the supply of land is fixed but in a business/country the supply of land can increase when they expand into a new area.

mobility: geographically immobile and occupational mobile (can be used for a variety of economic activities)
reward: rent

Question 6

labour

Answer 6

any human effort used in the production of a good or rendering of a service.

reward: wages

mobility: depends on many factors
- can achieve high occupational mobility if the individual has the right qualifications
- can achieve high geographical mobility

Question 7

capital

Answer 7

any human-made resources used in the production of a good or the rendering of a service.

reward: interest
mobility: depends on the type of capital

Question 8

enterprise

Answer 8

the ability to take risks, start and run a business venture. this is done by an entrepreneur who also organizes the other factors of production and makes decisions for the firm.

reward: profit
mobility: can be highly mobile

Question 9

economic goods

Answer 9

economic goods are goods that consumers pay for. they require limited resources to produce them due to scarcity so therefore, they have an opportunity cost.

Question 10

free goods

Answer 10

free goods are products that do not have a price and do not need any resource to produce so they do not have an opportunity cost.

Question 11

explain the price mechanism

Answer 11

the price mechanism is a price system that operates under the forces of supply and demand. this means that if a good is in high demand, the prices will go up which signals the producers to allocate their resources to the production of these goods while if a resource is of low demand, the prices go up which signals the producers to reallocate their resources to the production of other goods which are of higher demand. also, if goods are of surplus supply, the prices go down which signals producers to reallocate their resources to goods that are low in supply. when goods are low in supply, their prices go up which signals producers to allocate resources to the production of such goods.

Question 12

microeconomics

Answer 12

microeconomics is the study of a particular segment of the economy. this could be consumer behaviour, supply of a good and individual markets.

Question 13

macroeconomics

Answer 13

macroeconomics is the study of the economy as a whole. this could be aggregate demands (AG), rate of employment and unemployment in an economy and general inflation.

Question 14

inflation

Answer 14

the increase in general prices of goods and services

Question 15

basic economic questions

Answer 15

what to produce?
how to produce?
for whom to produce?

Question 16

what to produce?

Answer 16

what kind of products are in high supply
what should we allocate our resources on
what quantity

Question 17

how to produce?

Answer 17

what type of production method should be used?

- labour intensive method or capital intensive method.

Question 18

for whom to produce?

Answer 18

how to distribute goods?
how it’s given to people
which section of people should it be produced and distributed for

Question 19

economic system

Answer 19

arrangement of how resources are allocated in an economy.

answers the three basic economic questions

Question 20

three economic systems

Answer 20

planned economy
mixed economy
market economy

Question 21

free market economy

Answer 21

an economic system where resources are owned and allocated by individuals and businesses. in this type of economic system, making profit is their only aim and resources are allocated through the price mechanism

Question 22

advantages of market economy

Answer 22

1. consumer sovereignty ( consumers are considered the ‘kings’ of production because they impact the goods and services produced)
2. variety of goods and services
3. resources are used efficiently

Question 23

disadvantages of market economy

Answer 23

1. consumption of demerit goods are encouraged
2. external costs (costs to society) are not considered
3. goods are services may not be produced if they are non-profitable

Question 24

planned economy

Answer 24

an economic system where the government controls the allocation of resources and what is produced. in this type of economic system, their only aim is to provide for society.

Question 25

advantages of planned economy

Answer 25

1. prices are kept under control because everyone can afford it
2. no monopoly
3. production of merit goods
4. low level of unemployment because the government aims to provide for everyone
5. no waste of resources

Question 26

disadvantages of planned economy

Answer 26

1. consumers can only buy from the government
2. prices don’t go down because of the lack of competition
3. resources may be used inefficiently because there is no profit.

Question 27

mixed economy

Answer 27

an economic system that resources are owned and allocated by both the private and public sectors. it’s a blend of both planned and market economic systems and some resources are owned by the private sector while some are owned by the secondary sector.

Question 28

advantages of mixed economy

Answer 28

1. the government can provide public and merit goods and businesses can provide the consumers wants.
2. government control over business activity
3. government can provide jobs in the public sector