E1

Question 1

What is the nature of the economic problem?

Answer 1

People’s wants are unlimited and the resources to provide for them are limited therefore scarcity exists. We must choose what is produced and give up other things (opportunity cost). An economic system must decide what is produced, how it is produced and for whom it is produced.

Question 2

What do we need?

Answer 2

Goods and services necessary for survival

Question 3

What do we want?

Answer 3

Goods and services not necessary for survival

Question 3

What do we want?

Answer 3

Goods and services not necessary for survival

Question 4

Define economic good

Answer 4

There is an opportunity cost in producing the good as it takes resources to produce

Question 5

Define free good

Answer 5

A good that is free because there is more than enough available to satisfy the demand for them

Question 6

Define factors of production

Answer 6

The scarce resources used in the production of goods and services

Question 7

Define capital

Answer 7

Any human made good that is used to produce other goods and services - they are aids to production

Question 8

Define enterprise

Answer 8

Enterprise is undertaken by entrepeneurs who take a risk (with their money, time…) and bring together the other 3 factors of production to start a business in order to make a profit.

Question 9

What are the mobility of the factors of production?

Answer 9

The mobility of the factors of production refers to the extent that resources can be changed from one production process to another

Question 10

What are the factors that affect the mobility of land?

Answer 10

The revenue gained from alternative use:
If the price of houses go up, then the price of land to build houses on will also go up, therefore more land will be transferred from agricultural uses to provide housing

Question 11

What are the factors that affect the mobility of labour?

Answer 11

The demand for a good or service:
Labour is derived demand so if the demand for a good or service increases, then the demand for the labour that produces that good or service will increase too.

occupational mobility influenced by education:
The more education a person receives, the more qualifications they have so they will have more job choices

occupational mobility influenced by training:
The more training a person receives, the more skills they have so they will find it easier to switch jobs

geographical mobility influenced by price/availability of housing: Where there is cheaper housing, workers will find it more attractive to work in that area.

geographical mobility influenced by family ties:
people may be reluctant to move to another place to work because their children are at school in a particular area.

Question 12

What are the factors that affect the mobility of capital?

Answer 12

The different uses the capital can be put to:
The more specialised a machine is in one area, the less mobile it is to be moved into another

Question 13

What are the factors that affect the mobility of enterprise?

Answer 13

Enterprise is the most mobile factor of production. The skills involved can be applied in every industry.

Question 14

What does it mean by labour is derived demand?

Answer 14

If the demand for a good or service increases then the demand for the labour that produces that good or service will increase

Question 15

What increases the quantity of land?

Answer 15

Land reclaimation

Question 16

What increases the quality of land?

Answer 16

Irrigation and fertilisers

Question 17

What increases the quantity of labour and enterprise?

Answer 17

Increase in birthrate, immigration, decrease in the natural rate of unemployment

Question 18

What increases the quality of labour and enterprise?

Answer 18

Education, Training, Apprenticeship programmes

Question 19

What increases the quantity of capital?

Answer 19

Invetment

Question 20

What increases the quality of capital?

Answer 20

Technological advancements, Research and development (better machines) to increase innovation

Question 21

Define opportunity cost

Answer 21

Opportunity cost is the benefit lost from the next (second) best alternative given up when making a decision

Question 22

Why is opportunity cost important?

Answer 22

Opportunity cost shows that a choice must be made when making a decision because resources are too scarce to meet all our wants (because wants are unlimited, but all resoruces are limited)

Question 23

What is the Production Possibility Frontier (PPF) ?

Answer 23

It shows the maximum potential of two goods or services that can be produced using all the resources that an economy has available

Question 24

An decrease in any or all of the factors of
production will cause a_______ in the PPF

Answer 24

An decrease in any or all of the factors of production will cause a decrease in the PPF

Question 25

In a PPF showing consumer goods and capital goods, an increase in the production in capital goods will come with what it in the short run?

Answer 25

There will be an opportunity cost of consumer goods in the short run as more capital goods are being produced.

Question 26

In a PPF showing consumer goods and capital goods, an increase in the production in capital goods will come with what it in the long run?

Answer 26

In the long run, increased production of capital goods will shift the PPF outwards and therefore increase the potential amount of capital and consumer goods that can be produced.

Question 27

An increase in any or all of the factors of production will cause an _____ in the PPF

Answer 27

An increase in any or all of the factors of production will cause an increase in the PPF