MICRO: The Economic Problem ( incl FoP, Scarcity and Incentives)

Question 1

What is the economic problem?

Answer 1

How can the available scarce resources be used to satisfy people’s infinite wants and needs as effectively as possible?

Question 2

What are the four factors of production?

Answer 2

• Land
• Labour
• Capital
• Enterprise

Question 3

Define land

Answer 3

Includes all the natural resources in the land and on it

Question 4

What are examples of land?

Answer 4

• Non renewable resources, such as natural gas, oil and coal
• Renewable resources like wind or tidal power
• Materials extracted by mining (e.g diamonds and gold)
• Water
• Animals found in an area

Question 5

What is a non renewable resource?

Answer 5

They will eventually run out if we keep using them

Question 6

What is a renewable resource?

Answer 6

They can regrow or regenerate. But some have to be used carefully to not run out - e.g enough trees need to be planted to replace those used.

Question 7

Why are things that fall under the category of land scarce?

Answer 7

There aren’t enough natural resources to satisfy the demands of everyone.

Question 8

Why is air an exception?

Answer 8

• Usually enough for everyone
• But air can be polluted, as seen in big cities.
• Environment considered to be a scarce resource.

Question 9

What is labour?

Answer 9

Work done by people contributing to the production process.`

Question 10

What is the labour force?

Answer 10

The population available to do work

Question 11

How can different levels of education, experience or training affect labour?

Answer 11

They can make some people more valuable or productive in the workplace than others - they have a greater amount of human capital.

Question 12

What is capital?

Answer 12

Equipment used in producing goods and services

Question 13

Why is capital different from land?

Answer 13

Capital has to be made first

Question 14

What is an example of how much of an economy’s capital be paid for by the government?

Answer 14

A country’s road network is a form of capital

Question 15

What is enterprise?

Answer 15

Enterprise refers to entrepreneurs who take risks and create things from the other 3 FoPs.

Question 16

What do entrepreneurs do?

Answer 16

They set up and run businesses using available FoPs. If the business fails, they can lose a lot of money. But the reward for if it succeeds is profit.

Question 17

What are goods and services?

Answer 17

• GOODS - physical products that can be touched - phones, books etc.
• SERVICES - intangible things - medical checkups, train journeys.

Question 18

How is consumption a form of economic activity?

Answer 18

Consuming something means trying to satisfy a need or want, you can consume both goods and services.

Question 19

What are three questions on how to produce with limited resources?

Answer 19

• What to produce?
• How to produce it?
• Who to produce it for?

Question 20

What are the economic agents and what do they do?

Answer 20

• Producers - they make goods or provide services
• Consumers - people or firms who buy the goods and services
• Governments - set rules that participants in the economy follow, and also produces and consumes goods and services.

Question 21

How do these economic agents make decisions that affect how resources are allocated?

Answer 21

• Producers decide what to make and selling price
• Consumers decide what to buy and what they’re willing to pay
• Govts decide how much to intervene in how the other two act.

Question 22

How can people’s incentives answer these three questions?

Answer 22

What? - goods that can make profit
How? - the most cost efficient production of a good, to maximise profit
Who? - consumers who’re willing to pay for these goods