3 The economic problem

Question 1

Scarce resources

Answer 1

Resources that are limited in supply so that choices have to be made about their use.

Question 2

Economic goods

Answer 2

Good that are scarce because their use has an opportunity cost.

Question 3

Free goods

Answer 3

Goods that are unlimited in supply and which therefore have no opportunity cost

Question 4

Wants

Answer 4

Desires for the consumption of goods and services.

Question 5

Needs

Answer 5

The minimum that is necessary for a person to survive as a human being.

Question 6

Basic economic problem

Answer 6

There are infinite wants but finite factor resources with which to satisfy them.

Question 7

Opportunity cost

Answer 7

The benefits forgone of the next best alternative.

Question 8

What three parts do economists distinguish to the economic problem?

Answer 8

WHAT is to be produced?
HOW is production organised?
For WHOM is production to take place?

Question 9

Factors of production

Answer 9

Capital
Enterprise
Land
Labour

Question 10

Land

Answer 10

Natural resources available for production.

Question 11

Labour

Answer 11

Physical and mental effort by humans.

Question 12

Capital

Answer 12

As a factor of production is the stock of manufactured resources used in production of goods and services.

Question 13

Enterprise

Answer 13

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

Question 14

Renewable resources

Answer 14

Renewable resources (in theory) are replaceable if the rate of extraction of the resource is less than the natural rate at which the resource renews. Examples of renewable resources are solar energy, oxygen, biomass, fish stocks and forestry.

Question 15

Non-renewable resources

Answer 15

Non-renewable resources are resources which are finite and cannot be replaced. Minerals, fossil fuels and so on are all non-renewable resources.

Question 16

How should opportunity cost be expressed?

Answer 16

Expressed in terms of other alternatives that might have been forgone.

Question 17

Barter

Answer 17

The practice of exchanging one good or service for another without using money.

Question 18

Entrepreneur

Answer 18

An entrepreneur is an individual who seeks to supply products to a market for a rate of return (i.e. a profit). Entrepreneurs will often invest their own financial capital

Question 19

Rationing

Answer 19

Rationing is a way of allocating scarce goods and services when market demand exceeds available supply. There are many ways of rationing including by price, by consumer income, by assessment of need, by education level and by age, gender, nationality.