The Economic Problem

Question 1

Barter

Answer 1

The practice of exchanging one good or service for another without using money.

Question 2

Fundamental economic problem

Answer 2

There are infinite wants but finite factor resources with which to satisfy them.

Question 3

Constraints

Answer 3

Limits to what we can afford to consume – we have to operate within a budget and therefore must make choices from those sets that are feasible/affordable. There is always a set of conceivable things that are actually available, and another set of that are not.

Question 4

Economic agent

Answer 4

A participant in an economic system – be it a consumer, business or the government.

Question 5

Entrepreneur

Answer 5

An entrepreneur is an individual who seeks to supply products to a market for a rate of return (i.e. a profit). Entrepreneurs will often invest their own financial capital in a business and take on the risks associated with a business investment.

Question 6

Factor incomes

Answer 6

Factor incomes are the rewards to factors of production. Labour receives wages and salaries, land earns rent, capital earns interest and enterprise earns profit.

Question 7

What are the 4 factors of production?

Answer 7

Capital, Enterprise, Land and Labour (CELL)

Question 8

FoP 1. Capital

Answer 8

Capital - goods used in the supply of other products e.g. technology, factories and specialized machinery.

Question 9

FoP 2. Enterprise

Answer 9

Enterprise - Entrepreneurs organise factors of production and take risks.

Question 10

FoP 3. Land

Answer 10

Land - Natural resources available for production.

Question 11

FoP 4. Labour

Answer 11

Labour - The human input into the production process.

Question 12

Finite resources

Answer 12

There are only a finite number of workers, machines, acres of land and reserves of oil and other natural resources on the earth. By producing more for an everincreasing

Question 13

Free goods

Answer 13

Free goods do not use up any factor inputs when supplied. Free goods have a zero-opportunity cost i.e. the marginal cost of supplying an extra unit of a free good is zero.

Question 14

Inputs

Answer 14

Labour, capital and other resources used in the production of goods and services.

Question 15

Interest

Answer 15

Interest is the reward to the ownership of capital.

Question 16

Manufacturing

Answer 16

The use of machines, tools and labour to make things for use or sale. The is most commonly applied to industrial production, in which raw materials are transformed into finished goods on a large scale.

Question 17

Needs

Answer 17

Humans have many different types of wants and needs - economic, social and psychological. A need is essential for survival; food satisfies hungry people. A want is something desirable but not essential to survival e.g. cola quenches thirst.

Question 18

Non-renewable resources

Answer 18

Non-renewable resources are resources which are finite and cannot be replaced. Minerals, fossil fuels and so on are all non-renewable resources.

Question 19

Opportunity Cost

Answer 19

The cost of any choice in terms of the next best alternative foregone.

Question 20

Rationing

Answer 20

Rationing is a way of allocating scarce goods and services when market demand exceeds available supply. There are many ways of rationing including by price, by consumer income, by assessment of need, by education level and by age, gender, nationality

Question 21

Renewable resources

Answer 21

Renewable resources (in theory) are replaceable if the rate of extraction of the resource is less than the natural rate at which the resource renews. Examples of renewable resources are solar energy, oxygen, biomass, fish stocks and forestry.

Question 22

Rent

Answer 22

Rent is income typically associated with the ownership of land, but which can also include rental income from leasing out other assets such as cars, capital equipment.

Question 23

Scarcity

Answer 23

Scarce means limited. There is only a limited amount of resources available to produce the unlimited amount of goods and services we desire.