Basic economic problem: choice and the allocation of resources

Question 1

What is the basic economic problem?

Answer 1

The basic economic problem deciding on the best way about what to produce, how to produce it and for whom to produce. These choices have to be made due to the fact that resources are scarce and limited while human wants are unlimited.

Question 2

What is the definition of the factors of production?

Answer 2

The factors of production are the categories of resources which are used in the production of goods and services.

Question 3

What the four factors of production?

Answer 3

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

Question 4

What is land?

Answer 4

Land includes any natural resource or raw material that is used in the production of goods and services.

Question 5

What is labour?

Answer 5

Labour is the human input into the production of goods and services except for the entrepreneur.

Question 6

What is capital?

Answer 6

Capital is the goods used in the production of other goods or services.

Question 7

What is enterprise?

Answer 7

Enterprise is the actions of someone who shows initiative by taking a risk by setting up, investing in and running a business.

Question 8

What are resources that are not scarce called?

Answer 8

Resources that aren’t scare are called free goods.

Question 9

What is a free good?

Answer 9

A free good is a resource which is abundant in nature and not scare.

Question 10

What are economic goods?

Answer 10

Economic goods are goods which are made from scarce resources.

Question 11

What is conspicuous consumption?

Answer 11

Where a consumer will buy more of a good when the price rises to show their status or wealth.

Question 12

What is a country’s economic system?

Answer 12

A countries economic system is how they solve what to produce, how to produce it, and for whom to produce.

Question 13

What is scarcity?

Answer 13

Scarcity is the fact that resources are limited while human wants are unlimited.

Question 14

What is the problem with scarce resources having alternative uses?

Answer 14

Because scarce resources have alternative uses, we have to make choices. These choices come with an opportunity cost.

Question 15

What is the opportunity cost?

Answer 15

The opportunity cost is the next best alternative given up. If the question is not clear, couldn’t it just be the alternative uses of the resources used?

Question 16

What is a country’s resources?

Answer 16

The amount of resources that a country has determines the amount of goods and services which can be produced in order to satisfy the needs and wants of the people in that country.

Question 17

What is the problem when a country has little resources?

Answer 17

Less goods and services will be produced. This means that usually the people will have far less choice and will be unable to satisfy as many needs and wants compared to a country with more resources.

Question 18

What do most people in a country with many resources have?

Answer 18

They usually have a high standard of living.

Question 19

What is a conflict of interest?

Answer 19

A conflict of interest is where people disagree about the use of scare resources.

Question 20

What are there many conflicts of interest’s about?

Answer 20

Many people want to conserve non-renewable resources and use renewable resources sustainably so that they do not run out.

Question 21

How can we conserve renewable resources?

Answer 21

By introducing things like fishing quota systems and by doing things like allowing trees to grow large enough by cutting them down.

Question 22

What is an economy?

Answer 22

An economy is an area where people buy and sell goods and services. There many types of economies, for example, there are local, national and global economies.

Question 23

What are the two main sectors which economies are made up of?

Answer 23

The public sector and the private sector.

Question 24

What is the private sector?

Answer 24

The private sector includes all the organisations and firms owned and controlled by individuals.

Question 25

What is the public sector?

Answer 25

All the organisations owned and controlled by the government.

Question 26

What is production?

Answer 26

Where goods and services are produced in order to satisfy people’s needs and wants.

Question 27

What is consumption?

Answer 27

The using up of goods and services in order to satisfy a person’s needs and wants. People who use goods and services are called consumers.

Question 28

What are the inputs into a production process?

Answer 28

The inputs into a production process are the scarce resources used.

Question 29

What are the outputs of a production process?

Answer 29

The goods and services produced.

Question 30

What are consumer durables?

Answer 30

Goods which last a relatively long time.

Question 31

What are consumer non-durables?

Answer 31

Goods which don’t last very long. For example, food and drinks.

Question 32

What is investment?

Answer 32

The money spent on capital goods.

Question 33

What does an increase in investment usually do?

Answer 33

It should increase the productivity of a business. It also helps an economy grow. How does this work?

Question 34

What are public goods?

Answer 34

Goods that cannot be charged for so are provided by the government through taxes. For example, street lights, the courts, police, and roads are all public goods (note that schools and hospitals are not public goods).

Question 35

Who charges taxes and rates?

Answer 35

Taxes are charged by the central government and rates are charged by the local government.

Question 36

What are merit goods?

Answer 36

The goods and services that the government provides because they believe that it will benefit people and the economy. For example, schooling and healthcare are both merit goods.

Question 37

What does a point outside a production possibility curve show?

Answer 37

This is a point that is not currently attainable with current resources and level of technology.

Question 38

What does a point inside a production possibility curve show?

Answer 38

This is a point where resources are not being used efficiently and not being fully utilised.

Question 39

What does a point on the production possibility curve show?

Answer 39

That resources are being fully utilised based on the current level of technology and resources.