|What is the basic economic problem and what is the cause?
|The basic economic problem is scarcity. The basic cause of this problem is limited resources but unlimited wants.
|Give 2 examples of the basic economic problem in everyday life.
|Starvation due to the lack of food, while there are many countries where a lot of food is wasted every year. Poverty due to uneven distribution of wealth, such as in countries like Brazil where the poor live in favelas around the city.
|What is the consequence arising from the basic economic problem?
|Scarce resources have to be rationed and allocated among competing demands using control mechanisms.
|What is the disadvantage of using money as a control mechanism to allocate scarce resources?
|Money can be abused or misspent. It also creates inequality, and those with the most determine production.
|What is the disadvantage of using the government as a control mechanism?
|If the government can decide what resources are needed, they may become corrupt or anti-democratic. There are also less incentives to work grades.
|What is the purpose of economic activity?
|To produce goods and services that satisfy human needs and wants.
|Define an economic good.
|This is a product or service that generates a cost in it's production and/or consumption. This means that resources available for its production are limited and must be rationed among those who need or want it.
|Give 3 examples of an economic good.
|•Bottled water - cost generated in production •A computer - cost generated in production and consumption •Waste - cost generated in production and consumption
|Define a free good.
|This is a product or service that does not generate a cost in its production or consumption.
|Give 3 examples of a free good.
|•Beaches •The Sun •Air They are all naturally occurring and therefore have no cost in production or consumption.
|What is meant by factors of production?
|Factors of production are economic resources that can be turned be turned into finished goods that will then satisfy a human need or want. They are classified as land, labour, capital and enterprise.
|What does land represent as a factor of production?
|This represents all the natural resources that are obtained from land such as minerals, gases, oil, food etc. Natural resources can then be divided into renewable and non-renewable resources.
|What is the difference between renewable and non-renewable resources?
|•Renewable resources can be replaced once they are consumed. •A non-renewable resource is finite meaning that it cannot be replaced once it has been consumed.
|What does labour represent as a factor of production?
|It represents the quality and the quantity of the workforce available.
|Which factors determine the quality of the workforce?
|•Education •Technology •Motivation •Management
|Which factors determine the quantity of the workforce available?
|•School leaving age •Retirement age •Migration (immigration and emigration)
|What does capital represent as a factor of production?
|This is any man-made resource that is used in the production of goods and services such as tools, machines, factories, offices, roads etc. There are 2 types of capital: working and fixed.
|What is working capital?
|This is resources tied up in stock of raw materials, work in progress and finished goods and cash. Therefore the business will want to turn this into something they can sell in order to make a profit.
|What is fixed capital?
|This is the stock of buildings , factories and machines etc. The business needs these resources in order to turn working capital into goods that can be sold.
|What does capital represent as a factor of production?
|This represents the ability of individuals and firms to turn factors of production into finished goods that can be sold for a profit.
|What are the 2 forms of enterprise?
|•The ability to combine factors of production in a profitable way. •The willingness of an individual to take risks with their own and others money.
|What are economic agents?
|Economic agents is the term given to individuals, firms and governments who carry out and are affected by economic decisions. They are individuals, firms and governments.
|What are the objectives of individuals as economic agents?
|•To make money in order to survive and provide for their family •To acquire luxuries to improve standards of living •To obtain a degree through a good education to get the best job they can •To live a long, healthy and happy life
|What are the objectives of firms as economic agents?
|•To increase sales and lower production costs to maximise profits •To increase growth and market share •To gain global recognition and become revolutionary
|What are the objectives of governments as economic agents?
|•To make sure they make the right decisions •To set the right amount of tax which is both fair and economic •Control price inflation •To ensure stability to reduce the likelihood of a crash
|What is the Production Possibility Frontier (PPF)?
|This is the name given to the curve used to show all the possible combinations of goods that can be produced from scarce or limited resources using the factors of production, implying all of the resources are fully and efficiently employed.
|Why is the PPF curved in shape?
|The PPF is curve shaped to illustrate the opportunity cost of producing an additional unit of an output, indicating that resources are more efficient at producing one good compared with another.
|What do points on the PPF mean?
|The economy is productively efficient, and all resources are fully employed to maximise outputs.
|What does a point inside the PPF represent?
|Resources are not fully employed or the economy is using the resources inefficiently. Therefore, output is not maximised.
|What does a point outside the PPF mean?
|That this level of production is not yet attainable unless the economy can increase the amount of resources, productivity or efficiency to increase production and output.
|Define opportunity cost.
|Opportunity cost is the value of the next best alternative. All economic resources have an opportunity cost because there is a cost generated in their production and/or production. Free goods have no opportunity cost.
|What is the difference between a positive and a normative statement?
|A positive statement is factual and so can either be proved or disproved. A normative statement reflects a point of view or value judgement, so it cannot be proven true or false.
|This is the name of the process by which resources (inputs) are turned into goods and services (outputs) that satisfy human wants and needs. Production is classified into 3 economic sectors: primary, secondary and tertiary.
|What is the primary economic sector of production?
|This sector involves the production of raw materials, for example: •Farming •Fishing •Mining
|What is the secondary sector of production?
|This sector involves turning raw materials into finished goods, for example: •Manufacturing •Construction
|What is the tertiary economic sector of production?
|This sector involves any services such as: •Finance •Healthcare •Education •Legal •Law enforcement
|According to Adam Smith, the father of economics, how can production output be increased?
|By reorganising production by division of labour, specialisation and capital equipment.
|What is division of labour and what is the consequence?
|Production process is divided up into a number of separate tasks that enables workers to specialise in performing fewer tasks. Less time is wasted by workers moving between tasks which would otherwise have an opportunity cost.
|How can specialisation increase productivity of workers?
|This means the worker can concentrate on a narrow range of tasks in which they is most efficient. this enables them to develop the skills suitable for these tasks thus improving their productivity.
|How can the increased use of capital equipment increase output in production?
|Increase in capital equipment is more cost effective as it lowers the cost of production and more outputs can be produced from a given level of inputs.