Basic Economic Problem

Question 1

What are the basic needs for survival?

Answer 1

• food
• water
• clothing
• shelter

Question 2

What is a want?

Answer 2

Something we would like to have that we currently do not

Question 3

What is a need?

Answer 3

A need is complex as if it is not met then it makes like very difficult

Question 4

Why are individuals, businesses and governments wants unlimited?

Answer 4

• goods eventually wear out and need to be replaced
  
  • electronic appliances
• new or improved products become available
  
  • windows 8 for computers
• human nature that once one want is satisfied, they want more
  
  • innate greed
• advertising creates new wants
  
  • downloading ringtones

Question 5

What are some limited resources?

Answer 5

• coal and oil will run out one day
• there is a limited supply of workers
• there is a limit of how much investment a firm can make
• there is a shortage of talent to ‘alpha minds’(entrepreneurs)

Question 6

What is the basic economic problem?

Answer 6

• scarcity
• this arises because human wants for goods and services are infinite but the resources required to produce them are finite
• this is a relative concept as resources are not scare in themselves, that are scarce in relation to the demands placed upon them

Question 7

How is scarcity a universal problem?

Answer 7

• applies to all economies
• no country in the world has enough resources to produce enough goods to completely satisfy all the wants of its people
• scarcity will always exist and cannot be eliminated; it can only be reduced

Question 8

What is shortage?

Answer 8

• occurs when the demand for a good is greater than the supply of it
• in a market economy, shortages usually don’t last long and will be cured by a rise in price and/or an increase in supply
• demand is a want backed up by the ability to pay and is therefore limited by income

Question 9

What is scarcity?

Answer 9

• this is different because we emphasise unlimited wants (not demand) and how they are never fully satisfied
• this makes scarcity a permanent situation
• if there was no shortage there would still be scarcity because of all those consumers who want the product but cannot afford to pay

Question 10

What is opportunity cost for an individual?

Answer 10

-the opportunity cost of choosing a product is the next item oh his/her scale of preference

Question 11

What is opportunity cost for a producer?

Answer 11

-the opportunity cost of producing a good is the next most profitable product which could have beeen produced with the resources used

Question 12

What is opportunity cost for a government?

Answer 12

• the opportunity cost of providing a service is the nest best service which it could have provided with the resources used
• an economy investing its resources in new capital goods sacrifices current production of consumer goods

Question 13

What does ‘modern industrial economies are dynamic’ mean?

Answer 13

-they are in a continual state of change

Question 14

What does changing consumer demands and production methods mean?

Answer 14

-some industries will be growing (electronics and finance) whilst other are declining (coal and shipbuilding)

Question 15

Why do resources need to be mobile (able to change their location or their use)?

Answer 15

-resources which cannot change either their location or use run the risk of becoming unemployed

Question 16

What is geographical economics?

Answer 16

• factor or resource mobility is the speed and ease with which a resource can move from place to place
  
  • if someone moves from America to Scotland

Question 17

What is occupational economics?

Answer 17

• factor or resource mobility is the speed and ease with which a resource can change use
  
  • if someone changes job from farming to another type of employment like teaching

Question 18

In what forms can efficiency come in?

Answer 18

• technical
  
  • the maximum output from minimum inputs
• economic
  
  • the most valued goods and services are produced and no one can be made better off by transferring resources
    
    • resources have to be used in the most technical efficient way before economic efficiency can happen

Question 19

The best use of resources is called economic efficiency. This happens:

Answer 19

• when technical efficiency is achieved
  
  • products are produced at minimum unit cost
• when allocative efficiency is achieved
  
  • used to produce those goods and services which consumers most want
• when all resources are employed

Question 20

What can efficiency conflict with the aim of?

Answer 20

-equity and fairness

Question 21

What do most advanced economies base their production decisions on?

Answer 21

• demand
• the demands of a few rich people could be satisfied at the expense of the demands of a large number of poorer people
• although the economy could be said to be efficient, it is not equitable (fair)

Question 22

What is efficiency concerned with?

Answer 22

-maximising satisfaction

Question 23

What is equity concerned with?

Answer 23

-social justice and fairness

Question 24

What are production possibility curves/frontiers (PCCs/PPFs)?

Answer 24

-shows the possible combinations of goods and/or services that can be produced by a business or country

Question 25

What types of goods does a PPC show?

Answer 25

- capital goods - those which are produced in order to produce consumer goods - machinery and equipment - consumer goods - those which are produced by capital goods for final consumption

Question 26

What is the maximum output of a PPC called?

Answer 26

-potential output

Question 27

How are all points on the curve possible?

Answer 27

-if all existing resources are being used Ina technical efficient way

Question 28

What does it mean if the economy is producing at a point inside the curve?

Answer 28

- it is producing less than it could | - this could be because some resources are unemployed or they are being used inefficiently

Question 29

Why are point outside the curve not possible?

Answer 29

-the economy does not have the productive capacity

Question 30

What does any point on the curve represent?

Answer 30

- a technically efficient use of resources | - an economy still has to make the decision a kit what combination of goods to produce (opportunity cost)

Question 31

What can a PPC be used to show?

Answer 31

-the opportunity cost of producing a product