1.1 The Economic Problem

Question 1

What is the economic problem?

Answer 1

How can unlimited wants be satisfied given there are scarce resources?

1. What should be produced?
2. How should it be produced?
3. Who should it be produced for?

Question 2

The Problem of Scarcity

Answer 2

A scarce resource is one that is not available in unlimited amounts - it will be ‘used up’.

Question 3

Choices and trade-offs

Answer 3

Decisions involving a balance between two or more options, where choosing one option will mean sacrificing the other

Question 4

Opportunity Cost

Answer 4

In a trade-off, the opportunity cost is the ‘sacrifice’ made by choosing one option over another - the next best alternative that could have been chosen instead.

Question 4

Economic agents

Answer 4

People or organisations who participate in the economy:
- consumers (buyers),
- producers (makers & sellers)
- the government.

Question 5

Positive statements

Answer 5

Statements that are either true or false and can be proven based on evidence

Question 6

Normative Statements

Answer 6

Subjective statements which depend on opinions and judgements, which cannot easily be proven or disproven

Question 6

Factors of Production:
Land
Labour
Capital
Entrepreneurship

Answer 6

Factors of production are the inputs needed to create goods and services:
Land - is the space and natural resources needed for production
Labour - is the human effort required for production
Capital - refers to the premises and equipment that is used repeatedly in production
Entrepreneurship - is what brings the other three factors of production together - entrepreneurs make choices and take risks about what to produce, how and for whom