The economic problem section one

Question 1

What is the economic problem?

Answer 1

The economic problem arises because resources (like time, money, and raw materials) are limited, but human wants and needs are unlimited. This leads to the need for choices about how to allocate these scarce resources efficiently to satisfy as many needs and wants as possible.

Question 2

define opportunity cost

Answer 2

The forgone benefit for the next best alternative

Question 3

what is utility?

Answer 3

Utility is the satisfaction or pleasure a person gets from consuming a good or service.

Question 4

what are the FACTORS OF PRODUCTION

Answer 4

Capital – these are physical, man-made resources, such as factory buildings and machinery
Enterprise (or entrepreneurship) – the person who organises the business and often takes the risk
Land – these are naturally occurring resources, such as gold ore, oil, and fish
Labour – these are the people who make the goods or services
‘CELL’

Question 5

Define supply

Answer 5

The quantity of a product that producers are willing and able to provide at different market prices

Question 6

Define demand

Answer 6

The quantity of a product that consumers are able and willing to purchase at various prices

Question 7

What are the three types of markets?

Answer 7

Mixed economy
command economy
market economy

Question 8

what is the market economy?

Answer 8

A market economy is an economic system where goods and services are produced and exchanged based on supply and demand/price mechanism, with little government control.

Question 9

What role does the government play in a free market economy?

Answer 9

In a free market economy, the government has a limited role. It focuses on protecting property rights through the legal system and ensuring the value of money or currency. The government does not directly intervene in the production or distribution of goods and services.

Question 10

How does an increase in demand affect the price and the production of a good or service?

Answer 10

An increase in demand raises price and encourages businesses to bring more resources into the production of that good or service and maximise their profits through the high demand

Question 11

How do consumers influence what is produced in a market economy?

Answer 11

Consumers decide what should be produced in a market economy through the purchases they make. When consumers demand more of a particular product, businesses respond by producing more of that product to meet the demand.

Question 12

How is production determined in a market economy?

Answer 12

In a market economy, production is left entirely up to businesses. To succeed, businesses must be competitive by producing quality products at lower prices than their competitors.

Question 13

Who gets to consume goods and services in a market economy?

Answer 13

In a market economy, those who have more money are able to buy more goods and services. People’s ability to purchase products is determined by their income.

Question 14

What is a command economy?

Answer 14

An Economic system in which most resources are state owned and also allocated centrally

Question 15

Who decides what products are produced in a command economy?

Answer 15

In a command economy, a dictator or a central planning committee decides what products are needed. The government determines the goods and services that will be produced based on its own priorities and objectives.

Question 16

How are goods and services produced in a command economy?

Answer 16

In a command economy, the government owns all means of production. Since the government controls production, it decides how goods and services will be produced, including the allocation of resources and the methods used to manufacture products.

Question 17

Who decides who gets the goods and services produced in a command economy?

Answer 17

In a command economy, the government decides who will get what is produced. The distribution of goods and services is determined by the government

Question 18

What is a mixed economy?

Answer 18

An economic system in which resources are allocated through a mixture of the market and direct public sector involvement

Question 19

In a mixed economy, who plays a role in allocating resources?

Answer 19

Both the private and public sectors have a part to play in allocating resources.

Question 20

How are decisions made about resource allocation in a mixed economy?

Answer 20

How are decisions made about resource allocation in a mixed economy?
Answer: In a mixed economy, resource allocation is determined through a combination of market forces and government intervention. The market (supply and demand) determines the allocation of most resources, while the government regulates or influences certain sectors to correct market failures, ensure public welfare, and provide public goods. Both private businesses and the government play roles in resource allocation.

Question 21

What type of ownership is most common for productive resources in a mixed economy?

Answer 21

Private ownership is most common for productive resources, although public ownership still exists in some areas.

Question 22

What role does the government play in a mixed economy?

Answer 22

The government interacts with firms and labor in making decisions about resource allocation and plays a role in regulating certain sectors of the economy, although it does not control all resources.

Question 23

what is the Production Possibility Curve

Answer 23

Shows the maximum amount of two products that can be made in this time period with current resources and technology

Question 24

What do the points on the PPC represent?

Answer 24

They represent the most efficient combinations of goods that can be produced or purchased with the available resources.

Question 25

what do you label the axes when drawing a PPC graph?

Answer 25

-On the x-axis, label one good (e.g., Laptops).
-On the y-axis, label the other good (e.g., Smartphones).

Question 26

what does This point is inside the PPF, on the PPF,outside the PPF show

Answer 26

-This point is inside the PPF. It shows that some resources are not being used efficiently.
– This point is on the PPF. It shows the economy is using all resources fully and efficiently.
– Outside the PPF, meaning it’s impossible to achieve with current resources.

Question 27

What causes an outward shift in the ppc?

Answer 27

1. Technological advancement which increases Productivity
   
   2. Discover new resources
   3. Take resources (War)
   4. Trade for Resources

Question 28

What causes an inward shift in the ppc?

Answer 28

-fewer resourcses due to natural disaster (e.g., earthquakes, floods)

Question 29

What does Behavioral Economics focus on?

Answer 29

Behavioral Economics combines insights from psychology with economics, studying why people often make irrational decisions (e.g., eating too much, not saving enough) instead of always acting rationally.

Question 30

What is an “Econ” in traditional economics?

Answer 30

An “Econ” is a perfectly rational and emotionless being who always makes optimal decisions through cost-benefit analysis, never making mistakes.

Question 31

What is “bounded rationality”?

Answer 31

Bounded rationality is the idea that consumers and decision-makers are limited in their ability to make fully rational decisions due to factors like limited information, time constraints, and cognitive limitations. Instead of making the best possible choice, people often settle for a “good enough” solution (satisficing).

• Limited amount of information
• Limited amount of time to analyze
• Limited mental capacity

Question 32

What are heuristics?

Answer 32

Heuristics are best described as mental shortcuts or rules of thumb for decision-making to help people make a quick, satisfactory, but perhaps not perfect, answer to a complex question.

Question 33

What is the difference between optimal behaviour and maximizing behaviour?

Answer 33

Optimal behaviour focuses on making decisions that are good enough given the circumstances, while maximizing behaviour involves always trying to find the best possible outcome, which may not always be realistic or necessary.

Question 34

What are behavioural nudges?

Answer 34

Behavioural nudges are an alternative to using taxes and subsidies to influence choices

Question 35

How does eliminating or restricting choices influence consumer behavior?

Answer 35

Eliminating or restricting choices limits access to certain options, guiding individuals toward healthier or safer behaviors. Examples include banning smoking in public places or banning takeaways near schools, which aim to reduce harmful behaviors like smoking and unhealthy eating.

Question 36

What are financial disincentives and how do they influence behavior?

Answer 36

Financial disincentives are policies that increase costs for certain behaviors to discourage them. Examples include higher taxes on cigarettes and fuel or a congestion charge, which aim to reduce smoking, car usage, and pollution.
Higher taxes on cigarettes make smoking more expensive, which discourages people from buying cigarettes and encourages them to quit or reduce smoking.

Question 37

How can governments and organizations influence consumer behavior without banning, using taxes or subsidies?

Answer 37

Governments and organizations can influence consumer behavior through behavioral nudges, such as:

Provision of information (e.g., calorie counts on menus)
Changes to the environment (e.g., designing buildings with fewer lifts)
Changes to the default option (e.g., making salad the default side dish instead of chips)
Use of norms (e.g., showing what others are doing) These strategies guide individuals toward healthier or more socially beneficial choices without direct financial penalties or incentives.

Question 38

Who are the economic agents?

Answer 38

Consumers
Firms
Government

Question 39

What objectives do consumers have?

Answer 39

Work and save. They consume to satisfy their necessities, they save for a greater future consumption, they borrow to advance consumption, and they work (sacrificing leisure) to be able to consume.

Question 40

What are the main objectives of firms?

Answer 40

Firms try to maximize their utility (economic benefits) for their shareholders. To achieve this, firms use factors of production (land, labour, and capital)to produce goods and services, creating value and wealth.

Question 41

What objectives does the government have?

Answer 41

Governments providemost of the rules for how the rest of economic agents should interact. They offer goods and services (mostly public goods and services like roads or NHS) through national companies or in association with private firms.
They also distribute the wealth through social services in education, health and poverty programs.