The Basic Economic Problem

Question 1

Resources are ____ but wants and needs are ____

Answer 1

Limited and unlimited

Question 2

There is scarcity, so we must…?

Answer 2

Choose where to allocate these resources. These choices can be ranked in terms of benefits gained from each one.
A rational economic agent will choose the best one

Question 3

What is an opportunity cost?

Answer 3

The cost of the next best thing forgone (the next best choice). E.g you have £10 to buy either a top or a skirt and you buy the top, meaning the skirt is the opportunity cost.

Question 4

What are economic agents?

Answer 4

Individuals, firms, governments

Question 5

What is a positive economic statement?

Answer 5

Doesn’t need to be correct, but you can prove it one way or another —> tested against facts (e.g. gov borrowing increased by 25% last year)

Question 6

What’s a negative economic statement?

Answer 6

Opinions based on value judgement - cannot be proven
—> often contains phrases like ‘should’, ‘must’, ‘ought to’ (e.g. the gov should not have borrowed so much money last year)