The Economic Problem

Question 1

What is economics

Answer 1

A social science

Looks at human behavior

Question 2

What are the two types of economic statement

Answer 2

Normative statement

Positive statement

Question 3

What is a normative statement

Answer 3

Subjective statements that contain a value judgement (opinion)

Question 4

What is a positive statement

Answer 4

Statements that can be tested by referring to evidence

Question 5

What is the economic problem

Answer 5

Satisfying infinite wants and needs with limited resources

Question 6

What are the four factors of production

Answer 6

Land

Labour

Capital

Enterprise

Question 7

What’s an example of land in factors of production

Answer 7

Natural materials, water, animals

Question 8

What is an example of labour in factors of production

Answer 8

The work done by people

Question 9

What is an example of capital in factor of production

Answer 9

Factories, equipment, schools etc.

Question 10

How is capital different from land

Answer 10

Capital is different from land as capital has to be made

Question 11

What is an example of enterprise in factors of production

Answer 11

Entrepreneurs

Question 12

What is economic activity

Answer 12

The making of the good and the provision of the service

Question 13

What are economic agents

Answer 13

Participants in an economy

E.g. producers, consumers, government

Question 14

What do economic agents do

Answer 14

They affect how resources are allocated

Question 15

What are economic agents in a market economy

Answer 15

They are assumed rational

So make decisions best for themselves based on incentives e.g. making profit

Question 16

What is opportunity cost

Answer 16

The next best alternative that you give up in making a particular decision

Question 17

What does a ppf show

Answer 17

Shows the maximum amount of two goods and services an economy can produce

Question 18

What is a market a method for

Answer 18

It is a method for allocating scarce resources

Question 19

What are the pros of a free market economy

Answer 19

It is efficient

Encourages entrepreneurship

Lots of choice

Question 20

What are the cons of a free market economy

Answer 20

Inequalities

Non profitable goods may not be made

Monopolies

Question 21

What are the pros of a command economy

Answer 21

Maximise welfare

Low unemployment

Prevent monopolies

Question 22

Cons of a command economy

Answer 22

Poor decision making - leads to poor, slow decisions

Restricted choice

Lack of risk taking + efficiency

Question 23

What is market failure

Answer 23

An undesirable outcome in a free market

Question 24

What does the government do when there is market failure

Answer 24

The government intervine when there is market failure

E.g law changes, tax breaks etc.

Question 25

What is a mixed economy

Answer 25

When gov and markets play a part in allocating resources

Question 26

What are the two sectors in a mixed economy

Answer 26

Public sector Private sector

Question 27

What is the public sector

Answer 27

Government

Question 28

What is the private sector

Answer 28

Firms

Question 29

What are economic agents assumed to be

Answer 29

Utility maximisers E.g. Customer -> happiness Firm -> profit

Question 30

What is marginal utility

Answer 30

Benefit gained from consuming one additional unit of a good

Question 31

What is total utility

Answer 31

Overall benefit gained from consuming a good

Question 32

What are the economic objectives of producers

Answer 32

-profit They want to maximise this to Reinvest into company in hopes of making more profit later Survive Offer better rewards to shareholders and staff

Question 33

What are the economic objectives of consumers

Answer 33

Utility

Question 34

What are other objectives firms may want to maximise other than profit

Answer 34

Increase market share - could lead to some monopoly power, meaning firms could charge higher prices due to a lack of competition Total sales Ethical objectives - 'doing some good' I.e. buying resources locally to support the local economy even if cheaper alternatives are elsewhere

Question 35

Define trade off

Answer 35

An opportunity cost What you give up in order to so something else

Question 36

What happens in a command economy

Answer 36

Government decides how resources should be allocated

Question 37

What happens in a free market economy

Answer 37

Allocates resources based on supply and demand and the price mechanism