The reasons for individuals, organisations and societies having to make choices

Question 1

Economics

Answer 1

The study of how to allocate scarce resources in the most effective way

Question 2

Economic problem

Answer 2

The need to make choices regarding how to allocate limited and finite resources between unlimited and competing wants.

Question 3

What are the three aspects of the economic problem?

Answer 3

• What to produce
• How to produce
• For whom to produce

Question 4

What are the different factors of production?

Answer 4

• Land
• Labour
• Capital
• Enterprise

Question 5

What is meant by land?

Answer 5

Natural resources in an economy e.g forests, mineral deposits

Question 6

What is meant by labour?

Answer 6

The quantity and quality of human resources

Question 7

What is meant by capital?

Answer 7

Man made aids to production e.g factories, offices, machinery

Question 8

What is meant by enterprise?

Answer 8

A business or company

Question 9

What is meant by unlimited wants?

Answer 9

Basic wants or needs that are important to keep us alive

Question 10

What is specialisation?

Answer 10

The concentration of a worker, firm, region or country on a narrow range of tasks or goods and services

Question 11

Name the advantages of specialisation

Answer 11

• Enables people to improve their skills and become more productive
• Countries that specialise in producing certain goods and service have the comparative advantage over others
• Increase in trade - economic growth and development
• Widens range of goods that are available in an economy

Question 12

How could you further improve specialisation?

Answer 12

• Motivating workers (financial motivation)
• Reducing labour where possible - reduce cuts
• Aptitude tests and training to allocate tasks more efficiently

Question 13

Name the disadvantages of specialisation

Answer 13

• If demand for certain skills in the economy falls, people are made redundant
• If a whole nation specialises in the production of a particular good and it’s demand falls, then unemployment will rise
• Workers need to be flexible and multi skilled

Question 14

What is a subsidy?

Answer 14

A payment (usually from the government) to encourage production by lowering the costs of production per unit

Question 15

How can specialisation be used to address the problem of scarcity?

Answer 15

As specialisation leads to increased productivity, economies can produce more goods and services, and exchange these with others, leading to economic growth and development

Question 16

What is opportunity cost?

Answer 16

The next best alternative foregone when a choice is made.

Question 17

What is a PPC?

Answer 17

A production possibility curve - shows the maximum possible output combinations of two goods and services that can be produced with all resources fully emplyed

Question 18

How can you illustrate opportunity cost?

Answer 18

With a PPC!

Question 19

What does a point inside the PPC show?

Answer 19

Indicates underproduction and unemployment - the economy produces below its full capacity

Question 20

What is a market?

Answer 20

Any interaction between buyers and sellers for the exchange of goods and services

Question 21

How do markets allocate resources?

Answer 21

Through the workings of the price mechanism (the invisible hand)

Question 22

What is a free good?

Answer 22

A free good is a good that is not scarce, and therefore is available without limits