1 The economic problem

Question 1

Economics

Answer 1

The study of how scarce/limited resources are used in the world

Question 2

Economic goods

Answer 2

Gods that are scarce,i.e. there is not an unlimited supply of these goods

Question 3

Scarcity

Answer 3

When there is a limited amount of something

Question 4

Free goods

Answer 4

Resources that are usually not seen as limited, such as sunlight or air

Question 5

The economic problem

Answer 5

how to make the best use of limited or scarce resources

Question 6

Positive statements

Answer 6

factual statements that can be tested

Question 7

normative statements

Answer 7

Opinion-based statements that can be agreed or disagreed with

Question 8

Economic agents

Answer 8

Key groups involved in the economic problem, including governments, firms and households

Question 9

Households

Answer 9

• A user/consumer of goods and services
• households provide workforce fro businessess/firms i.e. labour force

Question 10

Firms

Answer 10

• producer of goods and services
• purchaser of the goods and services they use in production process

Question 11

Government

Answer 11

• use taxation and spending to influence micro economy
• often employed to improve society

Question 12

Rationality

Answer 12

• assumption that each economic agent acts in their own best interest

Question 13

Household rationality

Answer 13

• aims to maximise their own satisfaction
• thinking about the value of product vs its price

Question 14

Firms rationality

Answer 14

• aims to maximise their profits

Question 15

Government rationality

Answer 15

• aims to maximise welfare

Question 16

Factors of production

Answer 16

• The building blocks needed for a business to operate
• Land, labour, capital and enterprise

Question 17

Land

Answer 17

• all the inputs that come from nature and are used in te production process
• Reward = rent

Question 18

Reward for factors of production

Answer 18

• What needs to be returned by a business for using each of the factors of production

Question 19

Labour

Answer 19

• the efforts of people who work within a business including mental and physical effort
• Reward = wages and salaries

Question 20

Capital

Answer 20

• Man-made items that are needed to be able yo produce goods and services
• Reward = interest

Question 21

Enterprise

Answer 21

• the ability to take risks and bring together the other factors of production
• Reward = Profit