The economic problem

Question 1

The economic problem

Answer 1

Wants are infinite but there are only a finite amount of resources to satisfy needs/wants as resources are scarce. If people want to consume more than what is possible to produce scarcity develops.

Question 2

Basic questions of economics

Answer 2

What to produce?
How to produce it?
Who to produce it for?

Question 3

The economic problem: Consumers

Answer 3

They have a limited disposable income and need to decide how to spend it (finite). For example if someone had an annual income of 50,000, They may have to spend 30,000 on rent. They then have to decide how to spend the rest on things like food, transport, clothes and other goods

Question 4

The economic problem: Workers

Answer 4

They face decisions on how much to work. For example, working overtime will give them more income but less leisure time. If someone decides to go into tertiary education (university) may limit their earning power in the short term but have a greater earning power in the long term.

Question 5

The economic problem: Producers (firms)

Answer 5

They must remain profitable ( higher revenue than costs, profits) . They would need to produce goods that are in high demand and respond to buying habits (e.g. switching to online). They may need to update their technology and without adapting how they produce, they can become unprofitable.

Question 6

The economic problem: Government

Answer 6

Has finite resources and spending power is limited by tax revenue. They must decide how to collect the tax and who/what to spend the money on. They may want to cut down on benefit spending to try and incent.