Chp. 1: The Economic Problem

Question 1

Define economics

Answer 1

the study of the ways in which a society decides to use its scarce sources to satisfy wants

Question 2

How is inductive reasoning different to deductive reasoning?

Answer 2

Inductive - use of specific facts to generate a general law

deductive - drawing conclusions about an event from a law that already exists

Question 3

Define collective wants

Answer 3

wants that a substantial amount of people want or something that will benefit a large group of people eg. library or a highway

Question 4

Define ceteris paribus

Answer 4

Latin
‘other things being equal’
basically, it mean, “if nothing comes and effects it, such and such will occur”

Question 5

What is the general law in relation to wants and resources?

Answer 5

wants are unlimited however resources are limited

Question 6

What is the difference between needs and wants?

Answer 6

Needs are essential for life in society

Wants are things we desire because they give us satisfaction

Question 7

Define the three different types of wants

Answer 7

recurrent - eg. food; keep needing to be satisfied
complementary - eg. car + petrol + tyres; wants that go together
competitive - eg. beef or chicken; can be substituted for each other

Question 8

Define opportunity cost

Answer 8

the best alternative opportunity/option forgone (not chosen).
eg. unable to do HPE because you study economics

Question 9

What is a PPF? What does it model?

Answer 9

A PPF stands for a production possibility frontier (curve for C)
It models opportunity cost often comparing 2 things
Along the frontier (line), there is the opportunity to purchase other things

Question 10

What does a PPF/C assume?

Answer 10

An economy uses resources fully and efficiently
There are only TWO goods being produced
All resources can produce the goods
Resources and technology are fixed

Question 11

What are the four factors of production?

Answer 11

Land - materials provided by nature
Labour - the workforce
Capital - man-made instrument of production
Enterprise - organizing and combing factors to create a productive establishment

Question 12

What factors determine the quality and quantity of labour?

Answer 12

production per worker

health, age, education, skill and the number of workers

Question 13

Would you consider enterprise a factor or production or just a type of labour?

Answer 13

it is considered a factor of production as it does much more work than a worker in the workforce, they have to actually create a productive business or establishment.

Question 14

What is the difference between allocative and technical/productive efficiency?

Answer 14

Allocative efficiency - distribution of resources in the most efficient way
Technical efficiency - maximising the production (quality & quantity) of goods and services

Question 15

Why might a government focus of allocative efficiency rather than technical?

Answer 15

• satisfy the most amount of people
• protect the environment
• not waste money
• maintain high standards of living for people

Question 16

How would you describe the economic problem?

Answer 16

• scarcity leads to necessity for choice
• to decide this you must consider…
  1. what & how much to produce
  2. how to produce it
  3. for whom
• it takes a combination of consumers, producers and the government to ‘solve’ the problem

Question 17

Explain a private-enterprise economy

Answer 17

- market economy
allows;
- ownership of private property
- use of market pricing
- varying degrees of government control
- self-interest as the motive for, or incentive to, work

Question 18

Define customer sovereignty

Answer 18

the ability of consumers to determine the pattern of production through their spending descisions

Question 19

Suggest reasons for the decline in subsistence economies.

Answer 19

• limitations of scarce resources
• isolated communities
• absence of markets and money
• lack of technology
• promotes a low standard for living
  Simply; they’re not keeping up with the world around them

Question 20

Why might consumers want to be apart of capitalism rather than a socialist/command economy?

Answer 20

A private-enterprise economy - provide freedom of spending, high quality of goods and services, high standard of living and overall more economic freedom
Socialist/command economy - state control of planning and spending, less political/economic freedom, production inefficiencies and little flexibility