CH3 The economic problem

Question 1

What do economists say about resources?

Answer 1

they say they are scarce

Question 2

What does scarcity mean for the economic agents?

Answer 2

it means that economic agents, such as individuals, firms and governments, can only obtain a limited amount of resources at any moment in time

Question 3

What are resources which are scare called?

Answer 3

they are called economic goods

Question 4

What are resources which are not scare called?

Answer 4

free goods

Question 5

What is the basic economic problem?

Answer 5

it is that resources are scare but wants are infinite

Question 6

What does the basic economic problem force economic agents to do?

Answer 6

it forces them to make choices. They have to allocate their scare resources between competing uses

Question 7

What is opportunity cost?

Answer 7

it is the benefit lost from the next best alternative (due to having chosen something else)

Question 8

What is an economy?

Answer 8

an economy is a system which attempts to solve the basic economic problem

Question 9

Is there just one economy or different levels and types?

Answer 9

there are different levels and types of economies. there is:
-the household economy, the local economy, the national economy, and the international economy.
-there are free market economies, and command economies.

Question 10

What are the 3 parts economists distinguish to the economic problem?

Answer 10

1) WHAT is to be produced? An economy can choose the mix of goods to produce
2) HOW is production to be organised? For instance, are smartphones to be made in the UK, Japan or Taiwan?
3) FOR WHOM is production to take place? What proportion of output should go to workers? How much should pensioners get?

Question 11

What are the 4 factors of production?

Answer 11

1) capital
2) enterprise
3) land
4) labour

Question 12

What is the value of a worker called? and what can increase it?

Answer 12

their human capital. Education and training will increase the value of their human capital

Question 13

What are the 2 types of capital?

Answer 13

1) working/circulating capital: stocks of raw materials, semi-manufactured and finished goods which are waiting to be sold
2) fixed capital: the stock of factories, offices, plant and machinery. It is used to transform working capital into finished products