Part 3

Question 1

Explain how economic decision making must balance the problem of scarcity with demand

Answer 1

Economic decision making involves understanding the tensions between scarcity and the pressure that results from unlimited wants (demand). This situation requires people to make decisions about how to allocate resources effeciently, in order to satisfy basic needs and as many additional wants as possible.

Question 2

Describe firm

Answer 2

A firm is a commercial enterprise, a company that buys and sells products and/or services to consumers with the aim of making a profit. Examples of Firms are law, accountancy and management consultancy partnerships. They are rarely referred to as companies. Firms are assumed to focus on profit maximization. This means that as much as possible is produced and sold to maximize profit. This involves the use of resources that can be mismanaged, wasted and overused in the pursuit of profits

Question 3

How can firms maximize growth and pursue profits whilst using resources sustainably?

Answer 3

It’s difficult for firms to maximize growth and pursue profits while also using resources sustainably. Businesses will need to identify how resources can be effectively utilised, minimising waste and, as far as possible, using renewable resources sustainably. This can be done by focusing on innovation and using best practice. The use of technology can help minimise resource use and maximize productivity, thus conserving resources and maximizing profits.

Question 4

Define opportunity cost (refer to image)

Answer 4

… means the loss of other alternatives when one alternative is chosen. The alternatives in this example are wheat and cars

Question 5

How much wheat can be produced in OppLand

Answer 5

If OppLand only produced wheat, it could produce 8,000 000 tonnes

Question 6

How many cars can be produced in OppLand (refer to image)

Answer 6

If OppLand only produced cars it could produce 4000 cars.

Question 7

Suppose that the economy in OppLand produced 3000 cars. At this point, how much wheat can also be produced

Answer 7

To make 3000 cars then, 2,000 000 tonnes of wheat could also be produced in OppLand

Question 8

Determine the opportunity cost in OppLand of producing 3000 cars

Answer 8

The opportunity cost of producing 3000 cars is the 6 000 000 tonnes of wheat foregone in order to produce the cars

Question 9

How does the slope of the production possibilities curve relate to opportunity cost

Answer 9

The slope of the production possibilities curve indicates the opportunity cost at each point of production

Question 10

Distinguish between wants and needs

Answer 10

Wants are things that people desire whereas needs are the things people cannot live without and are necessary for survival