Unit 3

Question 1

Explain the basic economic problem.

Answer 1

Resources have to be allocated between different competing uses because wants are infinite whilst resources are scarce.

Question 2

Define capital.

Give examples.

Answer 2

Capital as a factor of production is the stock of manufactured resources used in the production of goods and services.
E.g. machines, tools and other equipment.

Question 3

Define economic choice.

Answer 3

Economic choices involve the alternative uses of scarce resources.

Question 4

What are economic goods?

Answer 4

Economic goods are goods which are scarce because their use has an opportunity cost.

Question 5

What is an entrepreneur?

Answer 5

An entrepreneur is an individual who seeks out profitable opportunities for production and take risks in attempting to exploit these.

Question 6

Define entrepreneurship/enterprise.

Answer 6

Entrepreneurship/ enterprise as a factor of production is the seeking out of profitable opportunities for production and taking risks in attempting to exploit these.

Question 7

What are factors of production?

Answer 7

Factors of production, sometimes called factor inputs are the inputs to the production process: land, labour, capital and enterprise or entrepreneurship.

Question 8

Define fixed capital.

Answer 8

Economic resources such as factories and hospitals which are used to transform working capital into goods and services.

Question 9

What are free goods?

Answer 9

Free goods are goods that are unlimited in supply and which therefore have no opportunity cost.

Question 10

Define human capital.

Answer 10

Human capital is the value of the productive potential of an individual or group of workers; it is made up of the skills, talents, education and training of an individual or group of workers and represents the value of future earnings and production.

Question 11

Define labour.

Give an example.

Answer 11

Labour as a factor of production is the physical and mental effort involved in producing goods and services.
E.g. A teacher teaching a lesson.

Question 12

Define land.

Answer 12

Land as a factor of production, is all natural resources that occur above, on or below the earth’s surface.

Question 13

What is a need?

What are the four basic needs?

Answer 13

A need is the minimum that is necessary for a person to survive as a human being.

1) Water
2) Food
3) Shelter
4) Clothing

Question 14

Define non-renewable resources.

Answer 14

Non-renewable resources are resources, such as coal or oil, which once exploited cannot be replaced.

Question 15

What is a non-sustainable resource?

Answer 15

A non-sustainable resource is one which can be economically exploited in such a way that is stock is being reduced over time.

Question 16

Define opportunity cost.

Answer 16

Opportunity cost is the benefits that are foregone of the next best alternative when a decision is made to use resources in a certain way.

Question 17

What are renewable resources?

Answer 17

Renewable resources, such as fish stocks or forests, that can be exploited over and over again because they have the potential to renew themselves.

Question 18

What are scarce resources?

Answer 18

Scarce resources are limited in supply so that decisions have to be made about their use.

Question 19

What is a sustainable resource?

Answer 19

A sustainable resources is a renewable resource that is being economically exploited in such a way that it will not diminish or run out.

Question 20

Define economic wants.

Answer 20

Wants are non-essential desires for the consumption of goods and services. Wants satisfy needs and are unlimited in supply.

Question 21

What is working or circulating capital?

Answer 21

Resources that are in the production system waiting to be transformed into goods or other materials before being finally sold to the consumer.