T1: LS1 - The Economic Problem

Question 1

Define economics

Answer 1

Economics: the study of the economy

Question 2

Define an economy

Answer 2

An economy: refers to all of the goods and services which are sold, supplied and produced within a certain area.

Question 3

What are the four Factors of Production and their rewards/ factor incomes

Answer 3

C - Capital —> interest
E - enterprise —> profit
L - land —> rent
L - Labour —> wages

Question 4

Define Capital

Answer 4

Capital refers to the goods used to produce consumer goods and services.

Question 5

Define Enterprise

Answer 5

Enterprise: refers to the willingness of business owners to start up firms, innovate and take risks to generate a profit.

Question 6

Define Land

Answer 6

Land: Refers to the natural capital and resources which can be used to manufacture and produce different goods and services.

Question 7

Define Labour

Answer 7

Labour: all of the work done by workers to produce a good or service for a firm.

Question 8

What are the three key questions for firms?

Answer 8

W - What to produce?
H - How to produce it?
F - For whom to produce it for?

Question 9

What is the basic economic problem?

Answer 9

The basic economic problem is that there are unlimited desires and wants by consumers in an economy but only a finite amount of resources to satisfy these needs as effectively as possible.

Question 10

Economic agent definition

Answer 10

Economic agents: refer to different groups, stakeholders or entities that participate in the economy.