The Edonomic Problem

Question 1

What is the basic economic problem

Answer 1

• There are finite resources available in relation to the infinite wants and needs that humans have
• Due to the problem of scarcity, choices have to be made by producers, consumers and governments about the best (most efficient) use of these resources

Question 2

how does scarcity influence prices in a free market?

Answer 2

• The scarcer a resource, the higher the price for it will be
• The less scarce a resource, the lower the price for it will be

Question 3

What are renewable resources?

Answer 3

• Renewable resources can be used repeatedly and naturally replenished, for example wind generated electricity

Question 4

What are non-renewable resources

Answer 4

• Non-renewable resources cannot be naturally replenished at a pace that keeps up with consumption. For example, oil and coal

Question 5

What is opportunity cost

Answer 5

Opportunity cost is the loss of the next best alternative when making a decision

Question 6

Why is there always an opportunity cost?

Answer 6

Due to the problem of scarcity, choices have to be made about how to best allocate limited resources amongst competing wants and needs

Question 7

consumer opportunity cost

Answer 7

When a consumer chooses to purchase a new phone, they may be unable to purchase new jeans. The jeans represent the loss of the next best alternative (the opportunity cost)

Question 8

Producer opportunity cost

Answer 8

When a producer decides to allocate all of their resources to producing electric vehicles, they may be unable to produce petrol vehicles. The petrol vehicles represent the loss of the next best alternative (the opportunity cost)

Question 9

Government opportunity cost

Answer 9

When a government decides to provide free school meals to all primary students in the country, they may be unable to fund some rural libraries which may have to close. The libraries represent the loss of the next best alternative (the opportunity cost)