scarcity and choice

Question 1

what is the basic economic problem

Answer 1

the basic economic problem is scarcity. wants are unlimited and recourses are finite, so choices must have to be made. resources have to be used and distributed optimally

Question 2

what is an economic good

Answer 2

economic goods benefit society, have the problem of scarcity and have an opportunity cost. since they are scare, they have some value, so consumers will pay for them

Question 3

what is a free good

Answer 3

free goods have no opportunity cost, because there is no scarcity of the good. for example air and water are free goods. these goods are not traded because they are freely available

Question 4

when producing goods what must the economy concider

Answer 4

what to produce

how to produce it

for whom to produce it

Question 5

why should the economy consider what goods to produce

Answer 5

what to produce is determined by what the consumer prefers. consumers tell producers what they prefer by demanding goods and using their ‘spending votes’

Question 6

why should the economy consider how to produce goods

Answer 6

producers seek profits and aim to minimize production costs

Question 7

why should the economy consider whom to produce goods for

Answer 7

whoever has the greatest purchasing power in the economy, and is therefore able to buy the good.

Question 8

why is opportunity cost important to economic agents

Answer 8

Opportunity cost is important to economic agents, such as consumers, producers
and governments. For example, producers might have to choose between hiring extra staff and investing in a new machine. The government might have to choose between spending more on the NHS and spending more on education. They cannot
do both because of finite recourses, so a choice has to be made for where resources are best spent

Question 9

what is opportunity cost

Answer 9

The opportunity cost of a choice is the value of
the next best alternative forgone

Question 10

how is productivity calculated

Answer 10

output per worker per period of time

Question 11

how can productivity be increased and how does it affect output costs

Answer 11

productivity can be increased by training workers or using more advanced capital machinery.
being more productive also lowers average costs per unit of output

Question 12

what does being more productive mean

Answer 12

being more productive means the same input, such as the number of workers, produces more output, over the same period of time

Question 13

what does less productivity require

Answer 13

being less productive requires a larger input to produce the same quantity of output

Question 14

what is specialization

Answer 14

Specialisation occurs when each worker is completes a specific task in a production process. it shows shows how,
through the division of labour, worker productivity can increase. Firms can then take advantage of increased efficiency and lower average costs of production.

Question 15

who can specialisation be achieved by

Answer 15

Specialisation can be achieved by individuals, businesses, regions of countries or countries themselves

Question 16

what are the advantages of specialisation on a global level

Answer 16

greater world output, so there is a gain in economic welfare.

lower average costs, since the market becomes more competitive

there is an increased supply of goods to choose from

there is an outwards shift in the PPF curve

Question 17

what are the disadvantages of specialization on a national level

Answer 17

less developed countries might use up their non-renewable resources too quickly, so they might run out

countries could become over-dependent on the export of one commodity, such as wheat. if there are poor weather conditions, or the price falls then the economy would suffer

Question 18

what are the advantages of advantages of specialization at a individual level

Answer 18

higher output and potentially higher quality, since production focusses on what people and businesses are best at

there could be a greater variety of goods and services produced.

there are more opportunities for economies of scale so the size of the market increases

there is more competition and this gives an incentive for firms to lower their costs, which helps to keep prices down

Question 19

what are the disadvantages of specialization at a individual level

Answer 19

work becomes more repetitive, which could lower the motivation of workers, potentially affecting quality and productivity workers could become dissatisfied.

there could be more structural unemployment, since skills might not be transferable, especially because workers have focused on one task for so long

by producing a lot of one type of good through specialization, variety could in fact decrease for consumers

there could be higher worker turnover for firms, which means employees become dissatisfied with their jobs and leave regularly

Question 20

what are the 4 factors of production

Answer 20

capital

enterprise

labour

land

Question 21

what is a production possibility frontier (PPF)

Answer 21

a ppf shows the maximum productive potential of an economy, using a combination of two goods or services, when resources are fully and efficiently employed

Question 22

what causes the ppf curve to shift outward

Answer 22

An increase in the quantity or quality of resources shifts the PPF curve outwards, so the productive potential of the economy increases, and there is economic growth. This can be achieved with the use of supply side policies

Question 23

what does it mean when the ppf is a straight line

Answer 23

the marginal opportunity cost is constant. This is because the amount of one good given up to produce the other does not change. This is not realistic because resources are not fully adjustable to produce both good A and good B.

Question 24

what does it mean when a ppf has a concave shape

Answer 24

increasing opportunity cost. This is more realistic than the straight line. Producing more of good B decreases the relative output of B and leads to a relatively higher loss of the output of A

Question 25

when drawing a original ppf curve what is assumed

Answer 25

a fixed amount of resources are used

there is a constant state of technology

Question 26

what does a ppf show

Answer 26

the opportunity cost of using the scarce resources