The basic economic problem

Question 1

economic good

Answer 1

a product which requires resources to produce it and therefore has an opportunity cost

Question 2

free good

Answer 2

a product that does not require any resources to make it and so does not have an opportunity cost.

Question 3

factors of production

Answer 3

the economic resources of land, labour, capital and enterprise
C- CAPITAL 
E- ENTERPRISE 
L- LAND
L- LABOUR

Question 4

the basic economic problem

Answer 4

people have unlimited wants and needs but there are limited resources to satisfy these wants and needs, so choices have to be made on how to allocate these limited resources to satisfy as many needs and wants as possible

Question 5

needs

Answer 5

essentials things for people to live adequately

food, water ,shelter, clothing, medical needs

Question 6

wants

Answer 6

luxuries people desire to live more comfortably

Question 7

Capital

Answer 7

manufactured, man-made goods used to produce other goods and services rather than being used for its own sake
e.g. machinery, tool, office

Question 8

enterprise

Answer 8

skills a business person requires to combine and manage successfully the other three factors of production, the ability to undertake risk and decision-making

Question 9

land

Answer 9

natural resources, obviously land for farming and the land on which buildings are built, but also resources found underground, such as coal, oil and etc.

Question 10

labour

Answer 10

the mental or physical skills of a human which are used to produce a service or good

Question 11

questions when making goods and services

Answer 11

What to produce?
How to produce?
For whom to produce it for?

Question 12

opportunity cost

Answer 12

the cost of the benefit foregone by giving up the next best alternative when making a decision

Question 13

Production Possibility Curve PPC

Answer 13

The PPC represents potential prospects for the production of a pair of products

Question 14

What does a PPC show

Answer 14

productive capacity, maximum output of an economy given the resources and factors of production it has

Question 15

What does being inside the PPC mean

Answer 15

all the resources are not being used to the best of their ability - inefficiency

Question 16

What does being on the PPC mean

Answer 16

ALL the available resources are being used EFFICIENTLY

Question 17

what other concept of economics does the PPC show

Answer 17

Opportunity cost and scarcity

Question 18

different types of economies

Answer 18

planned economies, market economies

Question 19

planned economy

Answer 19

• government makes decisions about what, how, for whom the goods are produced
• government main owner of most factors of productions (FoP)
• Government is the employer and sets wages and prices
• Goods produced may not match consumers’ wants
• Not many planned economies in the world (ex: North Korea)

Question 20

Market economy

Answer 20

• a.k.a free enterprise economies
• minimum government intervention/involvement
• land & capital are privately owned
• consumers decide what is produced by paying more for the things which they want
• firms and resources produce things which are high in demand (advantgaes - efficient use of resources, more choice and makes lots of money) (disadvantages - profit maximisation aims mean that public good might not be supplied and external costs not accounted for)
  No pure market economies exist as far as we know