Econ - The basic economic problem

Question 1

What are needs?

Answer 1

Basic essentials of life. THey are limited and common for everyone. like shelter, food, clothes.

Question 2

What are wants?

Answer 2

These are not essential for life its a desire. They are unlimited and different from person to person.
For example pizza, branded clothes and sports cars.

Question 3

What is the basic economic problem?

Answer 3

Scarcity which is when we have limited resources/factors of production while our wants are infinite.
We don’t have enough resources to produce everything that humans want

Question 4

What is a free good?

Answer 4

A good that has 0 opportunity cost meaning it can be consumed in any as much quantity as needed without reducing its availability to others

Question 5

What is economic good?

Answer 5

A good that has an opportunity cost in consumption and reduces is availability to others

Question 6

What are factors of free goods?

Answer 6

unlimited in supply
no monetary value
no ownership
no opportunity cost involved
scarce resources not involved
e.g. sunlight, air

Question 7

What are factors on economic goods?

Answer 7

limited in supply
have a monetary value
there is ownership
opportunity cost involved
scare resources areinvolved
e.g. cars, gold

Question 8

What are the 4 factors of production

Answer 8

Land, capital, enterprise and labor

Question 9

Explain Land

Answer 9

Land covers all natural resources used in production

Some are renewable (sunlight, wind energy), and some are non renewable such as coal and crude oil.

Question 10

Explain capitalS

Answer 10

Man made goods or means of production that are used in the production of other goods such as machinery and tools.
e.g. getting a fleet of delivery vehicles for a business

Question 11

What is a capital good?

Answer 11

Something man made which we don’t directly consume but used to produce other goods

Question 12

What is a consumer good?

Answer 12

A good that we directly consume which are wanted for the satisfaction they provide

Question 13

What’s different about capital and consumer goods?

Answer 13

Capital goods are for further production and consumer goods are for final consumption

Question 14

What is gross investment?

Answer 14

The total value of the output of capital goods it referred to as gross investment or sometimes just investment.

Question 15

What is depreciation

Answer 15

Every year some capital goods physically wear out adn are replaced by newer capital goods that add to the existing stock of capital. The value of replacement capital is referred to as depreciation or capital consumption.

Question 16

What is net investment

Answer 16

net investment = gross investment - depreciation

It is the value of new capital goods made without the replaced goods.

Question 17

Explain labor

Answer 17

Labor covers all human mental and physical effort involved in the production of goods and services.
Human capital is the educating, training, skills and experience that workers have gained.

Question 18

What affects the supply of labor?

Answer 18

Number of workers available

The number of hours which they work for

Question 19

What determines the number of available workers?

Answer 19

Size of population, age structure of the population, retirement age, school leaving age, attitude towards working women

Question 20

What determines the number of hours people work for?

Answer 20

Length of the average working day, whether they work full or part time, duration of over time, Length of holidays, time lost to illnesses

Question 21

What is labor force

Answer 21

The people who are working or are seeking work who are of working age (typically between school leaving age and retirement age)

Question 22

Explain enterprise

Answer 22

Enterprise refers to an individuals willingness and ability to put in finance, bear uncertain risks, and make decisions in a business.
Entrepreneurs are people who organise the other factors of production

Question 23

What are the ways factors can be mobile and explain them?

Answer 23

There is occupational mobility and geographically mobile.
Occupationally refers to to capability to change its use
Geographically refers to how a factor of production can move form one location to another

Question 24

Mobility of land

Answer 24

Most land is occupationally mobile because land used for a school could be used for agriculture. Wood from trees can go to making paper or building tables.

Land itself is not geographically mobile but resources and animals can be moved from one location to another.

Question 25

Mobility of labor

Answer 25

A workers geographical mobility depends on:
Family ties, price of housing, lack/or having information,restriction on the movement of workers, differences in educational systems in other counties.
A workers occupational mobility depends on:
Information on vacancies in other jobs and the qualifications of the worker

Question 26

Mobility of capital

Answer 26

Geographical mobility depends on the type of good for example a printer used by a bank can moved to another location but something like a coal mine cannot be moved
Occupational mobility depends on how specialised the good it, a coal mine is not occupationally mobile but a computer can be used for different purposes

Question 27

Mobility of enterprise

Answer 27

Enterprise is the most mobile of all the factors of production as skills involved can apply to any industry and entrepreneurs are also geographically mobile

Question 28

Factors affecting the supply of entrepreneurs?

Answer 28

Good education system, lower taxes on a firms profits, reduction in government regulations can encourage people to start up businesses.

Question 29

What are the payments to each factor of production?

Answer 29

Land - Rent
Capital - interest
Labor - Wages/salaries
Enterprise - Profit

Question 30

What is opportunity cost?

Answer 30

The loss of other alternatives when we make a choice.

Question 31

What are the main groups that make up an economy?

Answer 31

Consumers, producers and the government

Question 32

What is a consumer?

Answer 32

Someone who purchases good or services for their own use.

Opportunity cost of spending on one good sacrifices the next best alternative

Question 33

What is a producer?

Answer 33

A producer is someone who creates and supplies goods or services
Deciding what to produce and where to produce involves opportunity cost

Question 34

How does opportunity cost relate to governments

Answer 34

Governments chose what to spend on which involves opportunity cost as money used for subsidies could have been used to build a school etc.

Question 35

What does a rightward/leftward shift of the PPC mean

Answer 35

Rightward = economic growth
Leftward = economic recession

Question 36

What are reasons for economic growth/recession?

Answer 36

growth - newfound resources, better production techniques, better technology, better education leading to better labor
recession - natural disaster, epidemic, civil war, fall in business investment and consumption