The basic economic problem

Question 1

What is the basic economic problem

Answer 1

1. Resources are scarce…
2. …human wants are unlimited…
3. …scarce resources have alternative uses…
4. …and we must choose which wants to satify.

Question 2

Define

production

Answer 2

Using scarce resources to make and sell goods and services that satisfy the needs and wants of consumers.

Resources are the inputs to productive activities and goods and services are the outputs.

Question 3

Define

factors of production

Answer 3

Scarce resources (land, labour and capital) used in the production of goods and services to satisfy consumer needs and wants.

Question 4

List the 4 factors of production along with their definitions and incomes

Answer 4

1. Land
   
   • Natural resources used in the production of goods and services.
   • Income: rent
2. Labour
   
   • Human effort used in the production of goods and services.
   • Income: wages
3. Capital
   
   • Man-made resources used in the production of goods and services
   • Income: interest/profit
4. Enterprise
   
   • The skills and willingness to take the risks required to organize productive activity in a firm.
   • Income: profit

Question 5

Define

consumption

Answer 5

The using up of goods and services to satisfy human needs and wants.

The people and organisations that are willing and able to buy goods and services to satisfy their needs and wants are known as consumers, and their spending is called consumption expenditure.

Question 6

Define

consumer durable goods and non-durable goods

Answer 6

Consumer durable goods are consumed over a relatively long period of time such as a washing machine, computer and mobile phone.

Non-durable goods are perishable or used up quickly, such a food, drink, matches, washing powder and petrol.

Question 7

Define

opportunity cost

Answer 7

The benefit foregone by giving up the next best alternative use of scarce resources.

Question 8

Define

production possibility curve (PPC)

Answer 8

A graph of the combined maximum possible output of two products an economy can produce efficiently with existing resources and technology. It shows how much of one product must be given up to produce more of the other.