The basic economic problem

Question 1

What is meant by basic needs or needs?

Answer 1

Basic needs / needs are goods and services that are essential for survival.

Question 2

Give 4 examples of needs.

Answer 2

Water, food, shelter, clothing

Question 3

What is meant by wants?

Answer 3

Wants are goods and services that are not essential for survival.

Question 4

Give 4 examples of wants.

Answer 4

Cars, holiday trips, headphones, accessories

Question 5

What are resources used for?

Answer 5

Resources are used to produce goods and services to satisfy needs and wants.

Question 6

Give 2 examples for natural resources, human resources and manufactured resources.

Answer 6

Natural resources : wood, land, soil, timber

Human resources : farm workers, factory manager, carpenter

Manufactured resources : Robots, factory machinery, tractors

Question 7

Define finite resources.

Answer 7

Finite resources are non-renewable resources that will eventually run out.

Question 8

Define renewable resources.

Answer 8

Renewable resources are resources that can be replaced as they are used to produce goods and services.

Question 9

What is unlimited wants?

Answer 9

Unlimited wants is that there is always something else that people would like and it could never be satisfied.

Question 10

What is the economic problem?

Answer 10

The economic problem is how can scarce economic resources be used effectively to satisfy people’s unlimited needs and wants.

Question 11

Define scarcity.

Answer 11

Scarcity is the lack of goods and services available to satisfy unlimited wants.

Question 12

Limited resources and unlimited wants leads to choices having to be made. Who has to make these choices?

Answer 12

Consumer, producer, government, worker

Question 13

Describe the economic problem.

Answer 13

Economic problem is because of humans having unlimited wants that cannot be fully met due to limited resources which leads to scarcity, and so choices having to be made.

Question 14

What are economic goods?

Answer 14

Economic goods are goods which are scarce relative to the demand for them.

Question 15

what are free goods?

Answer 15

Free goods are resources that are supplied at zero cost because there are more than enough available to satisfy the demand.

Question 16

Give 2 examples of free goods.

Answer 16

Sand, air, pebble

Question 17

Define the four factors of production. Give examples.

Answer 17

Land : natural resources (milk, wheat, wood, cotton, timber, cocoa, coal, metal)

Labour : human resources (carpenter, factory workers, office workers)

Capital : manufactured resources (machinery, equipment, payment, buildings)

Enterprise : brings all the other factors together to produce a good or service.

Question 18

What is the payment made to the owner for the use of land as part of the production process is called?

Answer 18

Rent paid.

Question 19

What are the rewards for the work carried out as part of the production process?

Answer 19

The payment of wages.

Question 20

What is the payment made for borrowing money to buy capital called?

Answer 20

Interest.

Question 21

Who carried enterprise and what is the rewards gained called?

Answer 21

Enterprise is carried out by an entrepreneur and the rewards gained by the entrepreneur is profit.

Question 22

What is meant by mobility of factors of production?

Answer 22

Mobility of factors of production implies how easy it is for factors of production to be transferred to alternative industry.

Question 23

Describe the mobility of land, labour, capital and enterprise.

Answer 23

Land : can often be adapted for other uses

Labour : workers can be trained to carry out other jobs

Capital : might be difficult to move to an alternative use (especially ones that carry out a particular function). The more specific the capital, the less mobile it is.

Enterprise : can be moved to alternative industries if the entrepreneur has some knowledge of the alternative industry.

Question 24

Describe how economic resources can be increased in quantity.

Answer 24

If there are more economic resources, then the economy can produce more output.

More labour : due to increase of population / immigration

More land : an increase in natural resources such as the discovery of more oil or petrol

More capital : due to business purchasing more machinery or equipment

Question 25

Describe how can the quality of resources be improved.

Answer 25

•Land can be more productive by using fertilisers to increase the output from farming land.

•Education and training improve the quality of labour and increase productivity

•Improvements in technology increase the quality of capital

•Entrepreneurs can become more skilled through education to manage other factors of production more efficiently.

Question 26

What cause an increase in output and economic growth?

Answer 26

An increase in output and economic growth is usually because there are more factors of production available for the production of goods and services or the quality of the factors of production has been improved.

Question 27

What is meant by public sector?

Answer 27

It is a part of an economy which is controlled or owned by the government.

Question 28

Define opportunity cost.

Answer 28

Opportunity cost is the next best alternative
foregone when making an economic decision.

Question 29

Give examples of opportunity cost for consumers, producers, workers and government.

Answer 29

Consumers : opportunity cost for choosing to buy a new phone is spending the money for a short vacation.

Producers : opportunity cost for buying a new oven is investing in more advertisement.

workers : opportunity cost for working overtime is spending time with friends.

government : opportunity cost for building a new police station is having new motorways.

Question 30

How does opportunity cost influence decision making?

Answer 30

Opportunity cost can be useful to calculate the benefits and downsides of each choice.

Question 31

What is meant by a production possibility curve (PPC) ?

Answer 31

Production possibility curve (ppc) shows the maximum possible output for two goods or services with a given amount of resources.

Question 32

What does a curved ppc line means?

Answer 32

Inconsistent opportunity cost / increasing opportunity cost

Question 33

What does a straight ppc line means?

Answer 33

Constant opportunity cost.

Question 34

Why does the ppc shows opportunity cost?

Answer 34

To show the choices made in an economy about what to produce and to weigh up choices and their opportunity costs.

Question 35

What does a position on the ppc means?

Answer 35

Indicates all resources are being used efficiently.

Question 36

What does a position inside the ppc means?

Answer 36

There are unemployed resources or an inefficient use of resources.

Question 37

What does a position beyond the ppc means?

Answer 37

It’s impossible to reach because the economy doesn’t have sufficient resources to produce the goods or services. There needs to be an increase in productivity from an increase in available resources or an increase in efficiency with the available resources.

Question 38

What are some developments that could move the ppc to the right?

Answer 38

Additions to resources (more available labour from immigration) , training of labour (in the form of improvements to education), and improvements in technology (more efficient equipment)

Question 39

The ppc curve can also move inwards to the left. What are some factors that could reduce the amount of resources available in an economy?

Answer 39

Face of destruction (earthquake, tsunami, war) or when labour migrates away to other countries.