Economic basics Topic 1 - The Basic Economic Problem

Question 1

What is scarcity?

Answer 1

The situation where people’s unlimited wants and needs always exceed the resources available to satisfy them

Question 2

What are needs?

Answer 2

Basic requirements for human survival

Question 3

What are wants?

Answer 3

desires that can be infinite and are not needed to survive

Question 4

What is the economic problem?

Answer 4

wants are infinite and resources are scarce so decisions have to made on what to produce, how, and for whom

Question 5

What is opportunity cost?

Answer 5

The next best alternative given up when making a decision

Question 6

Capital

Answer 6

the man-made physical goods used to produce other goods and services

Question 7

Enterprise

Answer 7

actions of an entrepreneur who organises the other factors of production and risks their own money in a business venture

Question 8

Labour

Answer 8

The workforce in the economy

Question 9

Land

Answer 9

the natural resources on the planet including physical land, natural resources such as coal and oil and rivers

Question 10

What are the different types of approach to leading a country?

Answer 10

Fascism, capitalism, socialism, communism

Question 11

What are the choices?

Answer 11

What to produce
How to produce it
For whom to produce it

Question 12

What are the factors of production?

Answer 12

Capital (tools, factories, buildings, equipment)
Entrepreneurship(combines FoPs)
Land - (natural resources, landmass, livestock)
Labour - (workforce, population)

Question 13

What are renewable resources

Answer 13

A number of land resources whose stock can be maintained over a period of time.

non-renewable resources stock decreases over time

Question 14

What is the process of production?

Answer 14

Combining resources to create goods and services.

Question 15

Consumption

Answer 15

Consumption is the process through which consumers use up goods and services to satisfy themselves

Question 16

What are the different type of goods?

Answer 16

Durable goods, soft/non-durable goods

Question 17

What is a PPC/PPF curve?

Answer 17

A Product Possibility Curves/frontiers are graphs showing the max possible production of two goods in an economy if all resources are fully used with current technology

Question 18

What are capital goods?

Answer 18

Goods that are used to produce other products

Question 19

What are consumer Goods

Answer 19

goods that are consumed by consumers for personal satisfaction

Question 20

Where can opportunity cost be shown easily?

Answer 20

On a PPC graph.

Question 21

Why do economies not produce on PPF curves?

Answer 21

Economies do not produce on PPF curves as resources are never used to their full potential. e.g. unemployment and corruption

Question 22

What economic concept is shown by a PPC diagram

Answer 22

Scarcity as it is not possible to produce as many as what is wanted.

Question 23

How can PPCs change?

Answer 23

They can shift inwards or outwards

They can also change shape if the workforce specialises more on one topice

Question 24

What would cause a PPC to shift inwards/outwards examples

Answer 24

shift inwards: disease
warfare
reduced population
Not unemployment - movement within curve

Shift outwards:
Technological breakthroughs
more resources
more workers

Question 25

rational/ irrational

Answer 25

not based on clear thought or reason

Question 26

What is revenue?

Answer 26

Price X quantity

Question 27

What are assumptions?

Answer 27

things believed to be true without proof

Question 28

What do economists assume about consumers and business owners?

Answer 28

Consumers will choose the option that grants them the most satisfaction whereas business owners will choose the option which will maximise their profit, as these are the rational courses of action

Question 29

Why do consumers not always make rational decisions?

Answer 29

Consumers do not calculate the benefit of each individual decision
Habitual behaviour - do not want to give up habits
Herding - copy other people’s decisions
Lack of information to make the informed decision
Lazy

Question 30

Why do business owners not always maximise their profit?

Answer 30

• The performance of some businesses may be affected by workers when the business owner delegates decision making to workers with different objectives.
• Some business owners have different objectives e.g. environment and customer care.
• Some businesses may operate as charities for a specific cause.
• Some businesses attempt to make money, but do so in such a way that it helps solve ecological problems