the economic problem

Question 1

positive statements

Answer 1

a statement that is factual and can be proven

Question 2

normative statement

Answer 2

a statement that is based on opinions, a value judgement and can not be proven

Question 3

the basic economic problem

Answer 3

• our wants are infinite
• the resources to produce these goods are finite
• this results in scarcity

Question 4

factors of production

Answer 4

• land
• labour
• capital
• enterprise

Question 5

land

Answer 5

• natural resources such as oil, coal, wheat, water.

- it can also be physical space for fixed capital.

Question 6

labour

Answer 6

human capital, which is the workforce of the economy.

Question 7

capital

Answer 7

man-made aids to production

They are used to supply other products eg. Machinery, technology, factories etc.

Question 8

enterprise

Answer 8

organization, willingness and ability to take risks

Question 9

forced choices to be made

Answer 9

• what to produce?
• how to produce it?
• for whom to produce?

Question 10

economic goods

Answer 10

• benefit society
• have the problem of scarcity
• have an opportunity cost
• since they are scarce they have some value, so consumers will pay for them and they can be traded

Question 11

free goods

Answer 11

goods that are not scarce. eg. air

and have no opportunity costs

Question 12

scarcity

Answer 12

when wants are infinite but resources are finite.

refers to the shortage of resources in relation to the quantity of human wants

Question 13

needs

Answer 13

resources necessary to survive

Question 14

wants

Answer 14

goods and services people would like to consume

Question 15

economic agents

Answer 15

• producers
• consumers
• government

Question 16

incentives

Answer 16

something which motivates an individual to make choices and behave a certain way

Question 17

rationalisation

Answer 17

decision making that leads to economic agents maximising their utility

Question 18

maximisation

Answer 18

consumers aim to generate the greatest utility possible, firms aim to generate the highest profits possible

Question 19

economic efficiency

Answer 19

when resources are allocated optimally, so every consumer benefits and waste is minimised

Question 20

productive efficiency

Answer 20

when resources are used to give the maximum possible output at the lowest possible cost; MC=AC

Question 21

allocative efficiency

Answer 21

when resources are allocated to the best interests of society, when there is maximum social welfare and maximum utility; P=MC

Question 22

trade off

Answer 22

when one thing is lost to gain something else

Question 23

PPF

Answer 23

depicts the maximum productive potential of an economy , using a combination of two goods and resources, when resources are fully and efficiently employed

Question 24

government

Answer 24

-assumed to act on behalf of consumers
-they intervene in the economy to different extents.
for example, some might provide healthcare and education, whilst others might leave healthcare to the free market.

Question 25

producers/firms

Answer 25

- firms aim to maximise their profits - this is the reward entrepreneurs receive for taking risks and making investments. - some firms have different objectives, such as maximising social welfare or helping the environment. - some firms might have philanthropic owners who seek to maximise the utility of others.

Question 26

consumers/households

Answer 26

- decide how to spend their limited resources. - choose option which maximised utility. - a consumers utility is the total satisfaction gained from consuming a good or service.

Question 27

reward/incentive | capital

Answer 27

interest from investment

Question 28

reward/incentive | enterprise

Answer 28

profit- an incentive to take risks

Question 29

reward/incentive | land

Answer 29

rent

Question 30

reward/incentive | labour

Answer 30

wages

Question 31

the rational decision making model

Answer 31

1. identify the problem 2. find and identify the decision criteria 3. weigh the criteria 4. generate alternatives 5. evaluate alternative options 6. choose the best alternative 7. carry out the decision 8. evaluate the decision