The basic economic problem

Question 1

What is economics?

Answer 1

Economics is the study of how society manages its scarce resources.

Question 2

What are the three fundamental questions of the basic economic problem?

Answer 2

1) What to produce with our limited resources? 2) How to produce it? 3) Who gets the output?

Question 3

What is scarcity in economics?

Answer 3

Scarcity means there are not enough resources to produce all the goods and services that consumers want.

Question 4

What causes scarcity?

Answer 4

Scarcity arises because human wants are unlimited, but the resources to produce goods and services are limited.

Question 5

What is the difference between a need and a want?

Answer 5

Needs are essential for survival, such as food, water, and shelter, while wants are non-essential desires, such as luxury items.

Question 6

What are scarce goods?

Answer 6

Scarce goods are economic goods that have a price because resources must be sacrificed to obtain them.

Question 7

What are free goods?

Answer 7

Free goods are abundant and satisfy wants without a price, such as fresh air or seawater.

Question 8

How is scarcity different from a shortage?

Answer 8

Scarcity refers to limited resources for unlimited wants, while a shortage occurs when demand exceeds supply at a given price.

Question 9

What is opportunity cost?

Answer 9

Opportunity cost is the sacrifice of the next best alternative when a choice is made.

Question 10

How does opportunity cost apply to consumers?

Answer 10

Consumers face opportunity cost when choosing to buy one product over another.

Question 11

How does opportunity cost apply to producers?

Answer 11

Producers face opportunity cost when allocating resources to produce one good instead of another more profitable good.

Question 12

How does opportunity cost apply to governments?

Answer 12

Governments face opportunity cost when allocating limited tax revenues to one service instead of another.

Question 13

What are the four factors of production?

Answer 13

The four factors of production are land, labor, capital, and enterprise.

Question 14

What does land refer to in the factors of production?

Answer 14

Land includes all natural resources, such as minerals, water, air, and sunlight.

Question 15

What does labor refer to in the factors of production?

Answer 15

Labor includes human effort, both physical and mental, used to produce goods and services.

Question 16

What does capital refer to in the factors of production?

Answer 16

Capital refers to man-made resources, such as machinery, tools, and buildings, used to produce goods and services.

Question 17

What does enterprise refer to in the factors of production?

Answer 17

Enterprise refers to the decision-making and risk-taking of entrepreneurs who organize and manage the other factors of production.

Question 18

How does scarcity relate to the basic economic problem?

Answer 18

Scarcity forces individuals, businesses, and governments to make choices about how to allocate limited resources to satisfy unlimited wants.

Question 19

Why do all choices involve opportunity cost?

Answer 19

All choices involve opportunity cost because selecting one option means forgoing another due to limited resources.