Economics Basics: Scarcity and Factors of Production
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Questions and Answers

What is the fundamental reason for the existence of economic problems?

  • The lack of technology
  • The scarcity of productive resources (correct)
  • The inefficiency of entrepreneurs
  • Unlimited wants of consumers
  • What is the primary role of entrepreneurs in a firm?

  • To organize and combine resources to produce goods and services (correct)
  • To manage the land and labor resources
  • To finance the production of goods and services
  • To market and advertise the goods and services
  • Which of the following is an example of a durable consumer good?

  • Electronics
  • Clothing
  • Furniture (correct)
  • Food
  • What is the fourth factor of production, in addition to land, labor, and capital?

    <p>Enterprise</p> Signup and view all the answers

    What do consumers want and need, but cannot fully satisfy due to the scarcity of resources?

    <p>Goods and services and unlimited wants</p> Signup and view all the answers

    What is the main goal of economics in terms of resource allocation?

    <p>To find the most efficient way to use limited resources to satisfy as many needs and wants as possible</p> Signup and view all the answers

    What is shown on a Production Possibility Frontier (PPF)?

    <p>The maximum combinations of goods and services that can be produced by an economy in each period of time</p> Signup and view all the answers

    What is the opportunity cost of a decision?

    <p>The value of the benefits forgone of the next best thing that could have been done</p> Signup and view all the answers

    What is the role of producers in a market economic system?

    <p>Producers use market price to determine what is profitable to produce</p> Signup and view all the answers

    What is the main difference between a market economic system and a mixed economic system?

    <p>The presence of a private sector versus a public sector</p> Signup and view all the answers

    What can a government do in a mixed economic system to correct market failures?

    <p>Introduce laws and regulations to control harmful activities</p> Signup and view all the answers

    Study Notes

    The Basic Economic Problem

    • The fundamental economic problem is the scarcity of resources, which means there are too few resources to produce all the goods and services that consumers need and want.
    • Unlimited wants and needs are faced with finite resources, leading to scarcity.

    Factors of Production

    • Resources or factors of production are used to make goods and services.
    • The four main factors of production are:
      • Land: natural resources used in production (e.g., land).
      • Labour: human effort used in production of goods and services (e.g., workers).
      • Capital: man-made resources used to produce goods and services (e.g., tractor).
      • Enterprise: skills and willingness to take risks required to organize productive activities.

    Opportunity Cost

    • Opportunity cost is the cost of choosing between alternative uses of resources.
    • Choosing one use means giving up the opportunity to use resources in another way, resulting in a loss of goods and services that could have been produced.
    • The problem of resource allocation is choosing how to use limited resources to satisfy as many needs and wants as possible and maximize economic welfare.
    • Economics aims to find the most efficient resource allocation.

    Production Possibility Curves and Choice

    • Opportunity cost can be shown using a production possibility frontier (PPF).
    • A PPF shows the maximum combinations of goods and services that can be produced by an economy in each period with its limited resources.
    • A PPF shows all the combinations of possibilities, involving two goods or options.

    Allocation of Resources

    • Market prices determine what is profitable for producers.
    • Rising consumer demand for a product will tend to increase its price.

    Market and Mixed Economic Systems

    • Market Economic System:
      • Has a private sector only.
      • Produces a wide variety of goods and services if it is profitable to do so.
      • Only provides goods and services to consumers who are willing and able to pay.
    • Mixed Economic System:
      • Has a private sector and a public sector.
      • A government can try to correct market failures.
      • Can allocate scarce resources to provide goods and services that people need.
      • Can introduce laws and regulations to control harmful activities.

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    Description

    Understand the fundamental problem of economics: scarcity of resources and unlimited wants. Learn about the factors of production, including land, labor, and capital. Test your knowledge of the basics of economics!

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