C1:The Basic Economic Problem

Question 1

What is an economic good

Answer 1

Having a degree of scarcity means that their is a degree of opportunity cost with consumption and product
Goods that are scarce

Question 2

What is a free good

Answer 2

No opportunity cost because there is no opportunity cost in consumption and production (E.g. Air)

Question 3

What is the basic economic problem

Answer 3

Resources are scarce and wants and needs are infinite so decisions have to be made to allocate resources efficiently

Question 4

What is a positive statement

Answer 4

A positive statement is a statement which is

For example, Facts

Question 5

What is a normative statement

Answer 5

A normative statement is a statement which involves a value of judgment of what ought to be

Question 6

A need is

Answer 6

Things essential for survival

E.g. Foods, Shelter and water

Question 7

A want is

Answer 7

Something desired and not required

E.g. Alcohol, Games and Phones

Question 8

Define scarcity

Answer 8

Shortage of resources in relation to the quantity of human wants and needs

Question 9

Evaluate the problem of scarcity and the requirements to make choices

Answer 9

Choices have to be made as

Question 10

Define firm

Answer 10

An organisation that produces output (goods or services)

Question 11

Define poverty

Answer 11

A situation in which individuals lack the basic necessities of life or have low income relative to their fellow citizens

Question 12

Name the 4 factors of production

Answer 12

Labour
Capital
Enterprise
Land

Question 13

How could you distinguish a positive statement

Answer 13

Usually contains will and is

Question 14

How would you distinguish and normative statement

Answer 14

Usually contains ought, fair, should, unfair, good, bad, deserve, better

Cannot be tested

Question 15

Name the different economic agents

Answer 15

Household
Firms
Businesses

Question 16

Explain the role of the economic agent: Household

Answer 16

Decide on what goods and services are consumed and where they would put their labour

Question 17

What motivates households

Answer 17

Increasing utility through wages

Question 18

Explain the role of the economic agent: firms

Answer 18

Decide on what goods and services are produced
Decide on who is employed
Decide on what raw materials and factors of production are purchased
Decide on production process

Question 19

What motivates firms?

Answer 19

Maximise profit

Question 20

Explain the role of the economic agent: Government?

Answer 20

Regulate markets and taxation 
Receives expenditure 
Control support of firms 
Control how much revenue it receive 
Make decisions to impose tax 
Set up framework for other economic agents

Question 21

What is the motivation for households

Answer 21

Utility through goods and services

Question 22

What motivates governments?

Answer 22

Raise revenue 
Set up framework for economy 
Prevent unemployment 
Pursue expenditure programs
Stabilise economy 
Meet environmental targets 
Allow economic growth

Question 23

What happens when an economic agent is acting rationally

Answer 23

MAXIMISATION

Question 24

How does emotion and impulse affect rationality

Answer 24

Out of sympathy you may give money to charity which reduces money given to goods and services
Companies may hire more people in poor areas

In sales due to frenzy and low price impulse will cause you to buy more

Question 25

How does customer inertia affect rationality

Answer 25

CBA to change
Prevents change to lower priced goods and services which means less spending power as they are not seeking lower priced goods reducing utility

Question 26

How does limited time affect rationality

Answer 26

Might rely on RRP (recommenced retail price) and not conduct proper research which will lead to misinformed decisions

Question 27

How does loss of version affect rationality?

Answer 27

Avoiding caution

Not investing or sticking with high priced goods which will lead to less utility or less maximising profit due to high price of factors of production

Question 28

How does social norms affect rationality

Answer 28

May do things that are considered as social norms which reduce utility (E.g. In America they pay tips

Question 29

What is capital?

Answer 29

No Human Resources that provide aid to production

Question 30

Why would giving to charity not challenge rationality

Answer 30

Improve brand reputation
Prevent boycotts due to good reputation
Money given could be given back to work

Question 31

What is the reward for capital

Answer 31

Interest from investment

Question 32

What is enterprise

Answer 32

Organising other factors of production And person who takes risks or innovates

Question 33

What are the rewards for enterprise

Answer 33

Due to risk taken,they receive profit