Basic Economic Problem

Question 1

What is the Basic Economic Problem ? (11 Mark)

Answer 1

There is a scarcity in recourses but human wants are unlimited, causing a problem called the BeP.

Question 2

Scarcity (Define) (1 Mark)

Answer 2

In economics scarcity means that there are not enough resources to produce all of the goods and services which customers want

Question 3

How does scarcity arise ?

Answer 3

Scarcity arises because human wants for goods and services are unlimited but the resources required to produce them are limited.

Question 4

The 3 BeP Questions (1 Mark)

Answer 4

1: WHAT to produce with our limited resources
2: HOW to produce it
3: WHO gets the output

Question 5

Scare Goods & Free Goods

Answer 5

• Scare good (Economic goods) have a price. i.e., something has to be sacrificed to obtain them
• Free goods, enough to satisfy everyone’s wants e.g., water, air. Free goods have no price.

All scarce goods have a Opportunity cost whereas free goods do not.

Question 6

Opportunity Cost

Answer 6

• Every choice involves a sacrifice, this is called opportunity cost
• Opportunity cost is the sacrifice of the next best alternative choice.

Question 7

Alternative Uses

Answer 7

• In economics we assume people are rational
  and when faced with a choice they will always
  choose the alternative that will give the
  greatest satisfaction.
• As well as choosing the one that has the
  lowest opportunity cost.

Question 8

Factors of production

Answer 8

• Land - recourses from the land (Minerals, wood, etc)
• Labour - (Human effort directed towards production of the good)
• Capital - Man made resources 9M
• Enterprise