The Economic Problem

Question 1

What is the economic problem?

Answer 1

Its that there are unlimited wants for goods and services but there are only scarce resources to make them - how do we allocated the scarce resources?

Question 2

What is an economic system?

Answer 2

System for allocating scarse resources. When there are competing needs and wants of society, yet limited amount of resources, choices must be made about how to allocate scarce resources efficiently

Question 3

What are wants? Give examples

Answer 3

peoples desires for goods and services but is not a necessity for survival. eg better house, bigger car, improved health care, holidays. These wants are unlimited or infinite. People always want - more it is human nature.

Question 4

What are needs? Give examples

Answer 4

Basic requirements for human survival. eg water, food, warmth, shelter, clothing

Question 5

What are the 3 key questions for reducing the economic problem?

Answer 5

1-what should be produced ?(should resources be used for machinery, consumer goods, or weapons)
2-how should it be produced? (using latest tech or skilled craftsmen)
3-Whom should it be produced for? (should goods and services be allocated to those with most money or those with special needs)

Question 6

What are scarce resources ?

Answer 6

amount of resources available when supply is limited

Question 7

What is a free good?

Answer 7

A product that requires no resources to make

Question 8

What is scarcity?

Answer 8

when something is desirable and limited in supply

Question 9

What are the 4 main factors of production?

Answer 9

Land, Labour Capital, Enterprise

Question 10

Land

Answer 10

The natural resources required in the production process eg space, wheat, metals

Question 11

Labour

Answer 11

The human resources requiried in the production process eg skills and effort eg Education, workforce of people

Question 12

Capital

Answer 12

The man made resources used for production eg tools, machinery , factories, devices.

Question 13

Enterprise

Answer 13

Skills a business person required to combine the other three factors of production and ability to take risk eg creator of a school, microsoft, large scale business owners

Question 14

how does the government get money

Answer 14

tax

Question 15

How do you calculate profit

Answer 15

revenue - cost

Question 16

What is meant by economic sustainability?

Answer 16

The best use of resources in order to create responsible growth, now and into the future

Question 17

What is meant by social sustainability?

Answer 17

it considers how an economic choice affects a communities quality of life and well being.

Question 18

what are consumer goods?

Answer 18

goods purchased by households eg cars, food, furniture

Question 19

what are capital goods?

Answer 19

goods purchased by firms and used to produce other goods eg factory machinery, tools, equipment

Question 20

What is a Production Possibility curve?

Answer 20

line that shows the different combinations of two goods an economy can produce if all resources are used up

Question 21

On a PPC, explain the following points on the curve
a. Above the curve
b. On the curve
c. Below the curve

Answer 21

a. An output that is not yet attainable
b. An output where resources are being used efficiently
c. An output where resources are being used inefficiently

Question 22

What does a straight, rather than a curved line on a PPC show?

Answer 22

That the costs between changing between one good and another is constant

Question 23

What would cause an outward shift in a ppc curve?

Answer 23

• inflation
• income
  -expansion
  -fashion and taste
  -loans

Question 24

what are causes of positive economic growth

Answer 24

• New technology eg AI
  -Improved efficiency eg better machinery
  -Education and training eg university
  -New resources

Question 25

what are causes of negative economic growth

Answer 25

-resource depletion eg deforestation, over use fossil fuels, over fishing -weather impact eg droughts, floods -Emmigration -Wars or natural disasters

Question 26

How to calculate revenue

Answer 26

revenue = price x quantity sold

Question 27

How do you maximise profit

Answer 27

-minimise costs -maximise sales -maximise prices

Question 28

Rational assumptions

Answer 28

- maximise benefts -cheapest price -satisfy needs and wants -quality

Question 29

Irrational assumptions

Answer 29

-unaware of hidden perks -brand -influences

Question 30

what are goods?

Answer 30

Goods are things that are produced in order to be sold

Question 31

What does finite mean? give example of finite resources

Answer 31

having and end or a limit eg fossil fuels - oil, natural gas, coal, and nuclear energy.

Question 32

what is fertile soil

Answer 32

ground that is capable of producing crops

Question 33

What does infinite mean?

Answer 33

without limites

Question 34

what does distribution mean?

Answer 34

act of sharing things among a large group of people in a planned way

Question 35

what does opportunity cost mean?

Answer 35

Resources often have an. umber of alternative uses. Individuals, firms and governments have to make a choice how to use the scarce resources. Once the choice is made there is also a sacrifice. This is is the opportunity cost (the next best alternative given up when making a choice). eg government has to make a choice on how to spend eg new motorway or new hospital

Question 36

what does sacrifice mean?

Answer 36

something valuable that you decide not to have in order to get something that is more important

Question 37

what does expenditure mean?

Answer 37

spending by government

Question 38

what does eliminate mean?

Answer 38

to get rid of something unnnecessary or unwanted

Question 39

what does economic growth mean?

Answer 39

increase in the level output by a nation