Section 1- The basic economic problem

Question 1

Define Resources

Answer 1

Factors used to produce goods & services

Question 2

Define Free good

Answer 2

A product which does not require resources to produce it and therefore has no opportunity cost

Question 3

Define Opportunity Cost

Answer 3

The best alternative forgone

Question 4

Define Economic Problem

Answer 4

Unlimited wants exceeding finite resources

Question 5

Define Scarcity

Answer 5

A situation where there is not enough resources to satisfy everyone’s wants

Question 6

Explain why wind coming in from the sea is a free good (4)

Answer 6

• Does not need resources to be produced (already available)

- No opportunity cost

Question 7

Define Economic good

Answer 7

A product which requires resources to produce it and therefore has an opportunity cost

Question 8

An example of the economic problem in the context of:

1. Consumers
2. Workers
3. Government

Answer 8

1. One does not have the income to buy every car
2. One can not do every job (supply of time)
3. Spending the tax revenue (Eg. Building schools, hospitals)

Question 9

Identify the 4 factors of production

Answer 9

1. Land
2. Labour
3. Capital
4. Enterprise

Question 10

Land

Answer 10

The gifts of nature available for production

Question 11

Labour

Answer 11

The human effort used in producing goods and services

Question 12

Capital/ Producer goods

Answer 12

Human-made goods used in production

Question 13

Human Capital

Answer 13

The education, training and experience the workers have gained

Question 14

Capital goods

Answer 14

Not wanted for their own sake, but for what they produce

Question 15

Consumer goods

Answer 15

Goods and services purchased by households for their own satisfaction

Question 16

Enterprise

Answer 16

The willingness and ability to bear uncertain risks and make key decisions in a business

Question 17

Occupationally mobile

Geographically immobile

Answer 17

Capable of changing use

Incapable of moving from one location to another location

Question 18

Causes for labour being geographically immobile

Answer 18

• High prices and unavailability of housing
• Family ties
• Differences in educational systems
• Lack of information (unaware of job opportunities)
• Restrictions on movement ( work visa)

Question 19

Causes of labour being occupationally immobile

Answer 19

• Lack of information about vacancies in other types of jobs

- Lack of appropriate skills and qualifications

Question 20

Define mobility of enterprise

Answer 20

The ability to change where enterprise is used or in which occupation

Question 21

Most mobile FOP? Why?

Answer 21

Enterprise-
The mobility of enterprises depends on the mobility of entrepreneurs
The skills involved in being an entrepreneur can be applied in every industry.
Someone who has been successful in starting up and running a business in one country is likely to be successful in another country also

Question 22

Quantity of labour is influenced by which 2 factors?

Answer 22

• Number of workers

- Number of hours for which they work

Question 23

Reasons for an increase in quantity of labour

Answer 23

• Increase in size of population
• Higher proportion of people of working age
• Higher retirement age
• Reducing the school leaving age
• Positive attitude to working women

Question 24

Labour force/ Workforce/ Working Population

Answer 24

People in work and those actively seeking work

Question 25

The number of hours which people work is influenced by:

Answer 25

- Length of the average working day - Whether they work full or part-time - The duration of overtime - Length of holidays - Amount of time lost through sickness and illness

Question 26

# Define - Output - Productivity - Labour Productivity

Answer 26

- Goods and services produced by the FOPs - Output per FOP in an hour - Output per worker in an hour

Question 27

Reasons for an increase in quality of labour:

Answer 27

- Better education - Better training - More experience - Better healthcare

Question 28

Define - Investment - Gross investment

Answer 28

- Spending on capital goods | - Total spending on capital goods

Question 29

Define depreciation/ capital consumption

Answer 29

The value of capital goods that have worn out or become obsolete

Question 30

If a country produces $200 million capital goods one year and there is depreciation of $70 million, what is the net investment?

Answer 30

$130 million

Question 31

How can net investment be negative?

Answer 31

When the capital goods taken out of use are not replaced. The gross investment will be less than depreciation.

Question 32

Reasons for an increase in quantity of enterprise

Answer 32

- Good education system including degrees in economics and business studies which increases the number of entrepreneurs - Lower taxes on firms' profits - Reduction in government regulations

Question 33

Payments for the FOPS

Answer 33

1. Capital- Interest 2. Land- Rent 3. Labour- Wages 4. Enterprise (entrepreuners) - Profits

Question 34

What do consumers seek?

Answer 34

High quality | Low prices

Question 35

What do workers seek?

Answer 35

High wages, good working conditions, good chances of getting promoted, job satisfaction

Question 36

What do producers seek when determining what to produce?

Answer 36

Maximum profit

Question 37

Opportunity cost for the government

Answer 37

Spending the tax revenue - It could raise tax revenue, therefore the opportunity cost will be for the taxpayers as they're giving up money they could've spent on something else

Question 38

What causes a shift to the right on a PPC?

Answer 38

Increase in quantity and quality of FOPS

Question 39

Potential Economic growth | Actual Economic growth

Answer 39

Potential is when the PPC diagram shifts to the right | Actual is when the output also increases along with the shift

Question 40

Analyse how a PPC illustrates scarcity, O.C and efficiency.

Answer 40

Scarcity- When your production point is outside of the curve, there is a scarcity of resources O.C- When there's movement on the diagram Efficiency- When the point is on the curve