The Economic Problem

Question 1

What is the economic problem? What are they?

Answer 1

Limited factors of production.
Capital, enterprise, land, labour

Question 2

What do we consider when we choose?

Answer 2

• What’s best to produce?
• What do we want more/less of?
• Who do you produce for?
• How do we produce efficiently?

Question 3

What is the opportunity cost?

Answer 3

The next best alternative forgone.

Question 4

What are the factors of production when the output is crisps?

Answer 4

Capital= Tractors, machinery
Enterprise= Walkers
Land= Farm land, land for factories
Labour= Farm/ factory workers

Question 5

What does scarcity?

Answer 5

Short supply

Question 6

What does need mean?

Answer 6

Something you must have, in order to survive or to do something?

Question 7

What does unlimited wants?

Answer 7

Someone always wants something else.

Question 8

What is the definition of factors of production?

Answer 8

Inputs used to produce a good or service in order to produce income.

Question 9

What is the basic economic problem?

Answer 9

Scarcity of resources in relation to the unlimited wants and needs of individuals and societies.

Question 10

What is specialisation?

Answer 10

Process where in a company or individual decides to focus their labour on a specific type of production.

Question 11

What is interdependence?

Answer 11

Situation where two or more parties depend upon each other for the exchange of goods and the fulfilment of their necessities.

Question 12

What is a mixed economy? Example of country?

Answer 12

Goods and services are allocated by businesses and consumers but also by the government in some cases.
- UK

Question 13

What is a command economy? Example of country?

Answer 13

Government/ state choose how much to give. Resources are allocated by government/ state. Everyone works for the sate.
- Used to be Russia
- North Korea

Question 14

What is a free market economy? Example of country?

Answer 14

Allocation of resources id decided by firms or businesses, consumers (Supply and demand)
- No free market
-USA is closer to free market than UK is.

Question 15

What are the economic agents? What are the 3 agents?

Answer 15

Players in the economy, groups that influence resource allocation.
- Firms/ producers
- Consumers
- Government

Question 16

What are the objectives of firms/ producers?

Answer 16

• Persue profit/ want profit
• Respond to demand
• Producers use less resources to create more profit.

Question 17

What are the objectives of consumers?

Answer 17

• Want utility/ enjoyment/ use
• Weigh up the utility to the price.

Question 18

What are the objectives of the government?

Answer 18

• Want good social welfare
• E.g. low unemployment

Question 19

How does the government intervene in the UK?

Answer 19

• Subsidise
• Provision
• Legislation/ law
• Information
• Tax
• Setting price- max/min

Question 20

What does a Production Possibility diagram show?

Answer 20

Shows the maximum possible output that can be achieved with the given resources.

Question 21

What does a PPC show?

Answer 21

• Different combinations of goods and services that can be produced with a given amount of resources.
• No “ideal point” on the curve.
• Any point inside the curve- suggests resources are not being utilised efficiently.
• Any point outside the curve- not attainable with the current level of resources
  -Useful to demonstrate economic growth and opportunity cost.

Question 22

Why does the curve go outwards?

Answer 22

If the quantity or quality of factors of production increases.

Question 23

Why does the curve go inwards?

Answer 23

When the productive potential is lower, less resources.
- War, lack of investment, recession, natural disaster, famine.

Question 24

What does a point on the curve mean?

Answer 24

Efficient

Question 25

What does a point in the curve mean?

Answer 25

Not efficient, can produce more.

Question 26

What does a point outside the curve mean?

Answer 26

Not possible.