LS1 - The Economics Problem & LS2 - Models in Economics

Question 1

Scarcity

Answer 1

Almost all there resources on the planet are limited, and will run out. This is called scarcity - economic agents can only obtain a limited amount of resources at any given period of time.
Resources which are scarce are called economic goods
Resources that are not scarce are called free goods

Question 2

What are the Factors of Production in an Economy?

Answer 2

1. Capital - manufactured stock of tools, machines, factories, offices used in the production of goods and services
2. Land - natural resources such as oil, forests, trees, land itself
   (property)
3. Enterprise - willingness of people in business to take risks to make profits
4. Labour - all of the work done by humans in production

Question 3

Working Capital

Answer 3

Stocks of raw materials, semi-manufactured pr finished goods waiting to be sold

Question 4

Fixed capital

Answer 4

Stock of factories, offices, plant, and machinery - won’t be transformed into a final product like working capital. Used to transform working capital into finished products

Question 5

Producers

Answer 5

Produce the goods and services in an economy

Question 6

Consumers

Answer 6

Purchase goods and services made by producers

Question 7

Government

Answer 7

Sets rules that other economic agents must follow. Also produces some goods and services such as railways, roads, education, and healthcare

Question 8

Economic models

Answer 8

Models can be created to explain how the economy works, and are used to precept the impact of economic change

Question 9

Ceteris paribus

Answer 9

Examining one variable while assuming all other variable remain constant

Question 10

Empirical models

Answer 10

Theory proved by observations and data

Question 11

Theoretical models

Answer 11

Hypothetical theory, not backed by data