The Economic Problem

Question 1

Outline the basic economic problem

Answer 1

Limited (scarce, finite) resources and unlimited wants and needs

Question 2

Name (with examples) the 2 ways resources are limited

Answer 2

1) Limited in physical quantity e.g. land which has a finite quantity
2) Limited in use e.g. labour and machinery which can only be used for one purpose at one time.

Question 3

SCARCITY

Answer 3

Limited in supply & demand

WANTS ARE UNLIMITED AND RESOURCES ARE FINITE

Question 4

What does scarcity do?

Answer 4

Necessitates choice

Question 5

ECONOMIC GOODS

Answer 5

Resources that are scarce or require labour to extract

Question 6

FREE GOODS

Answer 6

Resources that aren’t scarce

Question 7

What are people wants?

Answer 7

Infinite or unlimited

Question 8

What do resources have to be allocated between and what does this mean has to be made?

Answer 8

Competing uses - CHOICES

Question 9

Who are CHOICES made by?

Answer 9

Individuals, agents, groups, firms or governments

Question 10

What does each CHOICE have?

Answer 10

An OPPORTUITY COST

Question 11

Which goods have opportunity costs and which don’t?

Answer 11

FREE GOODS have NO opportunity cost and ECONOMIC GOODS HAVE opportunity costs

Question 12

What can opportunity costs be measured in?

Answer 12

Financial cost, Time, resources, health etc

Question 13

What is an economy?

Answer 13

An economy is how the infinite wants/scarce resources problem is solved by a society.

Question 14

What are the 3 parts of the economic problem?

Answer 14

WHAT
HOW
FOR WHOM

Question 15

What are factors of production?

Answer 15

The inputs needed to provide goods and services

Question 16

What are the four factors of production?

Answer 16

1. Land
2. Labour
3. Capital
4. Enterprise
   (CELL - capital, enterprise, land, labour)

Question 17

Define ‘Land’

Answer 17

All natural resources (also includes resources tied to the land i.e. mining underground)

Question 18

Define ‘Labour’

Answer 18

• The workforce

- Value of a worker is called human capital (education increases the value of human capital)

Question 19

Define ‘Capital’

Answer 19

Man-made resources used in the production of goods & services (amount of money needed to make the goods and what you use to make them - machinery, technology etc), human capital and what humans use for production is also capital.

Question 20

Define ‘Enterprise’

Answer 20

• Entrepreneurs raise money or invest their own
• Organise production
• Take RISKS to produce goods or services
• Often driven by the profit motive
  (Entrepreneurs drive innovation and are risk taking meaning there is very high failure rate).

Question 21

Name the rewards to the factors of production for land, labour and capital

Answer 21

Land - rent, sell, build
Labour - wages
Capital - returns

Question 22

BASE INDEX CALCULATION FORMULA

Answer 22

YEAR PRICE / INDEX PRICE (X100)

Question 23

What is an opportunity cost?

Answer 23

Is the benefit foregone of the next best alternative choice