1.1.3 Economic problem

Question 1

What is the economic problem?

Answer 1

A problem of scarcity, humans have infinite wants but a limited supply of resources

Question 2

Define opportunity cost

Answer 2

The benefit given up of the next best alternative

Question 3

What is an economy?

Answer 3

Any system that tries to solve the economic problem of scarcity

Question 4

What are the four factors of production/ define them?

Answer 4

1) land - natural resources available for production
2) labour - the human input into the production process
3) enterprise - entrepreneurs organise the other factors of production and take risks
4) capital - goods used in the supply of other products

Question 5

What is a factor reward?

Answer 5

The income that flows to each of the main factors of production when they are bought into productive use (e.g. rent wages, profits and interest)

Question 6

What is a non-renewable resource?

Answer 6

A resource as a finite supply that will run out

Question 7

What is a renewable resource?

Answer 7

A resource that is replaceable overtime, when the rate of extraction is less than a natural regeneration rate

Question 8

What is a free good?

Answer 8

The good that doesn’t use up any fat input when supplied and has a opportunity cost of zero e.g. Air

Question 9

What is an economic good?

Answer 9

A good that is scarce relative to demand therefore has a value