Unit 1.1: The Basic Economic Problem

Question 1

Scarcity

Answer 1

• Basic Economic Problems
• Resources are finite
• Wants are infinite

Question 2

Production

Answer 2

• The process of combining scarce resources to make and sell goods and services to satisfy our wants.
• Input = Resources
• Output = Goods/Services

Question 3

Factors of Production

Answer 3

• Scarce resources used up in the production of goods and services to satisfy our wants and needs
• 4 Types
• Inputs

Question 4

Land

Answer 4

• Factor of Production
• Also known as natural resources
• Anything naturally obtained or occuring that is used in the production of goods or services.
  Examples: Wood, Coal, Metal, Rubber etc.

Question 5

Labor

Answer 5

• Factor of Production
• Also known as human resources
• Physical or Mental human effort that helps the production of a good or service
  Examples: Doctor, Repairman, Miner, Salesman, Architect

Question 6

Capital

Answer 6

• Factor of Production
• Also known as man-made resources
• Goods that aid the production of many other goods and services (machinery/equipment)
  Examples: Turbine, Tractor, Calculator, Computer, Ship

Question 7

Enterprise

Answer 7

• Factor of Production
• Combines other three factors of production, and takes risks and decisions to make firms run successfuly, and production to happen.
• Entrepreneurs and Firms with Enterprise.

Question 8

Enterprise

Answer 8

The ability to run a production process

Question 9

Entrepreneur

Answer 9

People who have enterprise and can control and manage firms (taking risks and decisions to ensure a firm runs successfully).

Question 10

Firm

Answer 10

An organization that owns a factory, (or a number of factories), offices and shops where goods and services are produced.

Question 11

Consumption

Answer 11

Usage of goods/services to satisfy one’s needs and/or wants.

Question 12

Spending

Answer 12

• Expenditure for consumtption (exchanging money)

Question 13

Goods

Answer 13

• Items that satisfy human wants and provide utility

Question 14

Services

Answer 14

• A transaction in which no physical goods are transferred from the seller to the buyer

Question 15

Free Goods

Answer 15

• Goods that are not scarce
• They have no monetary value
• Unlimited
  Examples: Air, Sunlight,

Question 16

Economic Goods

Answer 16

• Goods that are scarce
• Require factors of production to create
• Monetary Value/Denomination
  Examples: Paper, Glass
  Types:
• Consumer Goods
• Capital Goods
• Public Goods
• Merit Goods
• Demerit Goods

Question 17

Consumer Goods

Answer 17

• Type of Economic Good
• For direct fulfillment of wants and needs (direct consumption) and not to create further goods
  Examples: Chocolate Bar, Chair
  Types:
• Consumer Durable Goods
• Consumer Non-Durable Goods

Question 18

Consumer Durable Goods

Answer 18

• Good -> Economic Good -> Consumer Good -> Consumer Durable Good
• Last Long
• Long-term consumption
  Examples: Furniture, Cars, Technology

Question 19

Consumer Non-Durable Goods

Answer 19

• Good -> Economic Good -> Consumer Good -> Consumer Non-Durable Good
• Last short
• One-time use (Short term consumption)
• Perishable Goods
  Examples: Food, Matches, Fuel

Question 20

Capital Goods

Answer 20

• Type of Economic Good
• Cannot be used directly, but have value in their ability to produce further goods. (Man Made Resources)
  Examples: Computer, Factory, Screwdriver

Question 21

Public Goods

Answer 21

• Type of Economic Good
• Provided by the government for the society, equal access to all members of society - no one can be restricted from using them (even if they dont directly pay for them)
  Examples: Roads, Infrastructure, Sidewalks, Parks

Question 22

Merit Goods

Answer 22

• Type of Economic Good
• Beneficial to society, hence their production is encouraged by government.
• Can be directly produced by government or by private sector
  Examples: Medicine, Housing, Fire Protection

Question 23

Demerit Goods

Answer 23

• Type of Economic Good
• Not beneficial to society, production is discouraged by the government
• Produced by private sector
  Examples: Cigarettes, Alchohol, Guns

Question 24

Opportunity Cost

Answer 24

• Scarce Resources have multiple possible usages
• Choices for the allottment of the resources
• The term refers to the benefits of the next best way the money could have been spent.
• What could have been done, with what was given up?

Question 25

Substitute Goods

Answer 25

• Goods in competition
• They can be used in place of each other
• Examples: Cola and Juice, Video Games and Board Games

Question 26

Complimentary Goods

Answer 26

• Goods that go together
• They are essential/helpful for the use of each other
• Examples: Printer and Ink, DVD and DVD Player, Pancake and Syrup

Question 27

Tradeoff

Answer 27

• The options given up to obtain something

- What was given up?

Question 28

Production Possibility Curve

Answer 28

• Graphical representation of maximum combined output of two products a firm or an entire economy can produce with its available resources
• Points on the curve indicate full efficiency - where resources are being used to their maaximum productive capacity
• Points under the curve indicate inefficiency - where resources are being used to partial productive capacity.
• Good X on x axis and Good Y on y axis : Leftward movement means more of good y and less of good x and inversely so.
• Opportunity cost with a change can be denoted by the decrease in one variable with an increase in the other.