Kognity Ch. 0.1.2 - Scarcity and Opportunity Cost

Question 1

Define “scarcity”.

Answer 1

Scarcity is when the available resources or factors of production are finite, while human wants and needs are infinite. There are not enough resources to produce everything that is necessary to satisfy human beings’ needs and wants.
Goods and services are scarce relative to people’s demand for them.

Question 2

What are the four factors of production?

Answer 2

land
labour
capital
entrepreneurship

Question 3

What is opportunity cost?

Answer 3

Opportunity cost is the ‘next best’ alternative that is given up (“forgone”) when an economic decision is made. It is never expressed in monetary terms.

Question 4

What is the difference between an economic good and a free good?

Answer 4

Economic goods are produced with scarce resources, and therefore have an opportunity cost (and a price).
Free goods are not produced with scarce resources, and therefore have no opportunity cost (and no price).

Question 5

What are the three basic economic questions?

Answer 5

What to produce?
How to produce?
For whom to produce?