Chapter 1 - Fundamental economic concepts

Question 1

Relative scarcity

Answer 1

Resources are limited compared to the demands placed upon those resources via needs and wants.

Question 2

Land resources

Answer 2

All resources that occur in nature. Minerals or fruit.

Question 3

Labour resources

Answer 3

Mental and physical effort put in by humans in the production process. Teacher providing education

Question 4

Capital resources

Answer 4

Made by combining labour and natural resources to create a more sophisticated input in the production process. Machinery, factories.

Question 5

What goods and services will be produced and in what quantities?

Answer 5

In a market based economy such as Australia this is answered through the interaction of demand and supply of independent and self interested consumers.

Question 6

How will goods and services be produced?

Answer 6

This question is answered by the decisions made by businesses to maximize their profits, how to produce is therefore heavily influenced by the costs and benefits associated with different production processes.

Question 7

For whom will these goods and services be produced?

Answer 7

In Australia the question is mainly answered by who can afford to buy what is produced.

Question 8

Opportunity cost

Answer 8

The value of the next best alternative forgone when a choice is made. Once you have made a choice you have given up the ability to undertake the alternatives.

Question 9

Production Possibility Frontier

Answer 9

A diagram illustrating the choices or options available when deciding how to allocate scarce resources.

Question 10

Allocative efficiency

Answer 10

The most efficient allocation of resources, where no resources are wasted and the needs and wants of a society are at its maximum satisfaction.

Question 11

Technical efficiency

Answer 11

Occurs when it is not possible to increase the output without increasing the inputs (resources). Productivity is at a maximum and average costs are at a minimum.