1.1 The Economic Problem

Question 1

1.1 What is economics?

Answer 1

The study of how scarce resources are allocated to satisfy unlimited wants.

Question 2

1.1 What is scarcity?

Answer 2

The fundamental economic problem where limited resources cannot satisfy unlimited wants.

Question 3

1.1 Why does scarcity exist?

Answer 3

Because resources such as labour land and capital are limited while human wants are unlimited.

Question 4

1.1 What is opportunity cost?

Answer 4

The value of the next best alternative forgone when a decision is made.

Question 5

1.1 Why is opportunitycost important?

Answer 5

It helps measure the real cost of decisions.

Question 6

1.1 What are the four factors of production?

Answer 6

Land labour capital and enterprise.

Question 7

1.1 What does land refer to in economics?

Answer 7

Natural resources used in production.

Question 8

1.1 Examples of land as a factor of production?

Answer 8

Oil forests minerals farmland water.

Question 9

1.1 What is labour in economics?

Answer 9

Human physical and mental effort used in production.

Question 10

1.1 What affects the quality of labour?

Answer 10

Education training experience and health.

Question 11

1.1 What is capital in economics?

Answer 11

Man made goods used to produce other goods and services.

Question 12

1.1 Examples of capital?

Answer 12

Machinery factories tools computers.

Question 13

1.1 What is enterprise?

Answer 13

The ability to organise production and take risks in business.

Question 14

1.1What reward does enterprise receive?

Answer 14

Profit.

Question 15

1.1 What reward does labour receive?

Answer 15

Wages.

Question 16

1.1 What reward does land receive?

Answer 16

Rent.

Question 17

1.1 What reward does capital receive?

Answer 17

Interest.

Question 18

1.1 What is a positive statement?

Answer 18

An objective statement that can be tested or verified.

Question 19

1.1 Exampleof a positive statement?

Answer 19

Unemployment in the UK is 4 percent.

Question 20

1.1 What is a normative statement?

Answer 20

A subjective value judgement based on opinion.

Question 21

1.1 Example of a normative statement?

Answer 21

Taxes on the rich should be increased.

Question 22

1.1 What is a mixed economy?

Answer 22

An economy with both private sector and government involvement.

Question 23

1.1 What is a free market economy?

Answer 23

An economy where resources are allocated by supply and demand.

Question 24

1.1 What is a command economy?

Answer 24

An economy where the government allocates resources.

Question 25

1.1 What is resource allocation?

Answer 25

How resources are distributed between different uses in an economy.