The Basic Economic Problem

Question 1

Capital

Answer 1

Human-made resources including machinery, tools and factory buildings, used in the production of other goods and services.

Question 2

Entrpreneur

Answer 2

A person with enterprise is willing to take risks and decisions necessary to organize scarce resources into firms to produce goods and services.

Question 3

Enterprise

Answer 3

Skills possessed by successful entrepreneurs: business know-how and the ability to organize productive activities.

Question 4

Land

Answer 4

All natural resources used to produce other goods and services

Question 5

Labour

Answer 5

Human effort used up in productive activities

Question 6

The Economic Problem

Answer 6

Resources are scarce and human wants are infinite. There are not enough resources in the world to produce all the goods and services to satisfy all our needs and wants.

Question 7

An increase in productive capacity

Answer 7

An outward shift in a PPC resulting from an increase in the quantity and/or quality of the resources available to an economy.

Question 8

A decrease in productive capacity

Answer 8

An inward shift in a PPC resulting from a decrease in the quantity and/or quality of the resources available to an economy.

Question 9

Production Possibility Curve (PPC)

Answer 9

The PPC shows all the possible combinations of two goods that an economy is able to produce with its existing resources and technology if they are fully and efficiently used.

Question 10

Opportunity cost

Answer 10

The benefit that is foregone from choosing one use of scarce resources over the next best alternative use of those same resources.

Question 11

Inefficient allocation of resources

Answer 11

Occurs when factor resources are not fully or effectively used in an economy. Production will be at a point below the PPC. More output could be produced if existing resources were better utilised.

Question 12

Occupational mobility

Answer 12

The ability to move or reallocate factors of production from one productive task to others.

Question 13

Geographical mobility

Answer 13

The ability to move or reallocate factors of production from one location to another.

Question 14

Economic goods

Answer 14

Goods produced to satisfy consumer needs or wants. There is an opportunity cost for producing economic goods.

Question 15

Free goods

Answer 15

Goods that we may need or want that are unlimited in supply and do not incur any opportunity cost when produced.

Question 16

The 4 factors of production

Answer 16

Capital, Land, Labour, Entrepreneurship

Question 17

What causes the PPC to shift outward?

Answer 17

Increased resources from

1. Economic growth
2. Population increase
3. Improvements in technology leading to increased production capacity
4. Improvements to labour productivity - skills training, education

Question 18

What causes the PPC to shift inward?

Answer 18

Decreased resources from

1. Natural disaster
2. Pandemic - population loss
3. Pandemic - loss of crops or animals
4. Recession - negative economic growth