The Economic Problem

Question 1

What is economics about?

Answer 1

How to best satisfy infinite desires using limited resources

Question 2

What is the economic problem?

Answer 2

There are unlimited needs/wants, but limited resources to satisfy people’ desires

Question 3

What are the resources in economics?

Answer 3

Factors of production

Question 4

What is the acronym for the factors of production?

Answer 4

CELL

Question 5

What are the 4 factors of production?

Answer 5

Land
Labour
Capital
Enterprise

Question 6

What is the purpose of the factors of production?

Answer 6

Combined to make g + s

Question 7

What is land? It’s reward?

Answer 7

Natural space available for production

Includes all natural resources non-renewable + renewable resources (oil, natural gas) extraction of raw materials (diamond, gold), water + animals found in area

Reward = rent

Question 8

What is a free good?

Answer 8

A resource that is enough for everyone, almost impossible to buy e.g. air

Question 9

What is labour? It’s reward?

Answer 9

Human resources, workers that produce g/s

Quality of labour depends on education, experience + training

Reward = wage

Question 10

What is capital? It’s reward?

Answer 10

Man-made aids to production

E.g., machinery, tractors, factories etc

Reward = interest

Question 11

What is enterprise? It’s reward?

Answer 11

Willingness of entrepreneurs to take a risk to make a profit

Set up business/innovate with use of FOP, make loss/profit

Reward = profit

Question 12

What is economic activity?

Answer 12

Involvement of combining the FOP to create goods that people can consume

Question 13

What is the purpose of economic activity?

Answer 13

Increase people’s economic welfare by creating g+s that satisfy their various needs+wants

Question 14

What is a good?

Answer 14

‘Physical’ products you can touch e.g. books

Question 15

What is a service?

Answer 15

‘intangible’ things e.g. medical checkups/training

Question 16

Why is choice important in an economy?

Answer 16

So that resources are allocated efficiently

Question 17

What are main 3 economic question?

Answer 17

What to produce? - consumer demand

How to produce it? - most cost-effective + minimises use of scarce resources

Who to produce it for? - those that can afford/gov

Question 18

Who are the economic agents?

Answer 18

Households/consumers
Firms/producers
Government

Question 19

Who are the economic agents?

Answer 19

Households/consumers
Firms/producers
Government

Question 20

What is meant by a producer?

Answer 20

Firms or people that make/provide g+s

Question 21

What is meant by a consumer?

Answer 21

People or firms who buy the g+s

Question 22

What is the government?

Answer 22

Institutions that sets the rules that other participants in the economy have to follow
They also produce/consume g+s

Question 23

What decisions do producers make?

Answer 23

What to make + price they are willing to sell for?

Question 24

What decisions do consumers make?

Answer 24

What to buy + price they are willing to pay?

Question 25

What decisions does the government make?

Answer 25

How much to intervene in the way producers + consumers act

Question 26

Why are all the economic agents assumed to be rational in a market economy?

Answer 26

They make decisions in their self interest, due to their economic incentives e.g. producers incentive this to maximise profits

Question 27

What is opportunity cost?

Answer 27

The cost of the next best alternative forgone when a choice is made

Question 28

What is a good choice using the concept of opportunity cost?

Answer 28

If value of current choice is greater than value of opportunity cost