LS1- The Economics Problem & LS2- Models in Economics

Question 1

The problem of scarcity

Answer 1

Almost all the 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.

Economic goods- scarce resources
Free goods- resources which are not scarce

Question 2

Factors of production

Answer 2

Capital- e.g. factories

Land- natural resources e.g. oil, forests, trees, property

Enterprise- willingness of people in business to take risks to make profits

Labour- all the work done by humans in production

Question 3

Working capital

Answer 3

Stocks of raw materials/semi-manufactured goods waiting to be sold

Question 4

Fixed capital

Answer 4

Stock of factories, offices and machinery- wont 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 the goods and services in an economy

Question 7

Government

Answer 7

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

Question 8

Economic models

Answer 8

• explain how the economy works
• can be used to precept the impact of economic change

Question 9

Ceteris Paribus

Answer 9

Examining one variable while assuming all other variables remain constant

Question 10

Empirical models

Answer 10

Theory proved by observations and data

Question 11

Theoretical models

Answer 11

Hypothetical theory, not backed up by data