The Basic Economic Problem and Econmic Assumptions

Question 1

What Is Scarcity?

Answer 1

Scarcity describes the situation where people’s unlimited wants and needs always exceed the resources available to satisfy them

Question 2

What is Choice?

Answer 2

Choice is deciding between alternative uses of scarce resources

Question 3

What are Needs?

Answer 3

Needs are basic requirement for human survival

Question 4

What are Wants?

Answer 4

Wants are desires that can be infinite and are not necessary for human survival

Question 5

What is the Economic Problem

Answer 5

The Economic Problem is that wants are infinite and resources are scarce. So decisions have to be made about: What to produce, How to produce, For whom to produce

Question 6

What is Opportunity Cost?

Answer 6

The Opportunity Cost is the next best alternative given up when making a decision

Question 7

What is Equality and Equity?

Answer 7

Equality is treating everyone fairly

Equity is treating everyone the same

Question 8

What are the Factors of Production?

Answer 8

Capital- Man-Made Resources used to make goods/services
Enterprise-Entrepreneurs who organise the other factors of production
Land-Natural Resources (below, on and above the ground)
Labour-Workers at any skill level

Question 9

What are non renewable resources?

Answer 9

Non renewable resources are those whose stock levels decreases over time as it is consumed. Eg: Fossil Fuels

Question 10

What are Renewable Resources?

Answer 10

Renewable resources are resources whose stock can be maintained over a period of time. Eg: Solar, Wind, Timber and Water

Question 11

What are durable goods?

Answer 11

Durable goods are goods which satisfy wants over a longer of time

Question 12

What is a PPC?

Answer 12

A PPC is a graph which shows the different combination of two goods an economy can produce if all resources are fully used, using current technology

Question 13

What are Capital Goods?

Answer 13

Capital Goods are goods that are used to produce othe products.

Question 14

What are Consumer Goods?

Answer 14

Consumer Goods are goods that are consumed by consumers for personal satisfaction.

Question 15

What 2 things does a PPC assume?

Answer 15

If the Technology is new

That all the resources are used efficently

Question 16

What would cause a PPC to shift inwards?

Answer 16

A fall in the fall in quantity (Not enough to make) or in the productivity (not making enough)
.Enviromental damage
.Emigration fall in labour
.Conflicts/Diseases fall in labour

Question 17

What would cause a PPC graph to shift outwards?

Answer 17

An increase in the quantity or in the increase of the factors of production.
.New tech
.Immigration
.Foreign direct investment
.Training of workers

Question 18

What are Assumptions?

Answer 18

Assumptions are things that you think are true although you don’t have definite proof

Question 19

What is the definiton of Irrational?

Answer 19

Irrationality is not based on clear thought

Question 20

What is the definiton of Rational?

Answer 20

Rational is based on clear thought and reasoning as you are trying to maximise benefit

Question 21

What is the Revenue?

Answer 21

Price x Quantity

Question 22

Why do some businesses not focus on maximising profit?

Answer 22

Computational Weakness-consumers are not always good at calculating the benefit of a good they are consuming?
Habitual Behaviour-consumers have habits that are difficult to give up
Herding-consumers copy others’ behaviour
Information gaps- sometimes consumers lack the information required to make a fully informed desicion
Charities
Social Enteprise-commercial firms which look to whose primary aim to support social good