Y1 1) The Economic Problem (Scarcity & Choice)

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Questions and Answers

What is the fundamental economic problem that microeconomics tries to solve?

  • How to increase the supply of natural resources
  • How to increase human wants and desires
  • How to allocate scarce resources to meet unlimited human wants and desires (correct)
  • How to reduce the cost of production

What does the acronym 'CELL' represent in the context of economics?

  • The four types of markets
  • The four types of economic systems
  • The four types of economic indicators
  • The four types of resources (correct)

Which type of resource is associated with entrepreneurs or risk-takers who innovate and produce goods and services?

  • Labor
  • Capital
  • Land
  • Enterprise (correct)

What is the term for the cost of the next best alternative foregone when a choice is made?

<p>Opportunity cost (B)</p> Signup and view all the answers

Who decides what to produce in a market economy?

<p>Businesses (C)</p> Signup and view all the answers

What are the three fundamental choices to be made in allocating resources?

<p>What to produce, how to produce it, and for whom to produce it (B)</p> Signup and view all the answers

What is the primary purpose of allocating scarce resources?

<p>To meet unlimited human wants and desires (A)</p> Signup and view all the answers

What type of resource includes machinery and computers?

<p>Capital (D)</p> Signup and view all the answers

What is the role of the government in a market economy?

<p>To help allocate resources more effectively (D)</p> Signup and view all the answers

What is a key concept in economics that helps measure the effectiveness of choices?

<p>Opportunity cost (C)</p> Signup and view all the answers

What is the primary factor that determines what goods and services are produced in a market economy?

<p>Consumer demand (B)</p> Signup and view all the answers

What is the primary goal of studying economics?

<p>To make informed decisions about resource allocation (C)</p> Signup and view all the answers

The basic economic problem is allocating abundant resources to meet limited human wants and desires.

<p>False (B)</p> Signup and view all the answers

Land is a man-made aid to production.

<p>False (B)</p> Signup and view all the answers

In a market economy, the government decides what to produce based on consumer demand.

<p>False (B)</p> Signup and view all the answers

Opportunity cost is the cost of producing a good or service.

<p>False (B)</p> Signup and view all the answers

The four factors of production are capital, labor, land, and management.

<p>False (B)</p> Signup and view all the answers

Microeconomics studies how to allocate abundant resources to meet basic human needs.

<p>False (B)</p> Signup and view all the answers

What is the main reason why choices need to be made in allocating resources?

<p>Because resources are scarce and cannot meet unlimited human wants and desires</p> Signup and view all the answers

What is the primary role of entrepreneurs in a market economy?

<p>To innovate and produce goods and services to make a profit</p> Signup and view all the answers

What is the relationship between natural resources and the production of goods and services?

<p>Natural resources provide the means for producing goods and services</p> Signup and view all the answers

What is the purpose of studying microeconomics?

<p>To solve the basic economic problem of allocating scarce resources to meet unlimited human wants and desires</p> Signup and view all the answers

What is the significance of opportunity cost in economics?

<p>It measures the effectiveness of choices by considering the cost of the next best alternative foregone</p> Signup and view all the answers

How do businesses decide what to produce in a market economy?

<p>Based on consumer demand</p> Signup and view all the answers

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Study Notes

  • Microeconomics studies how to best solve the basic economic problem, which is allocating scarce resources to meet unlimited human wants and desires.
  • The four types of resources, also known as factors of production, are capital, enterprise, land, and labor, which can be remembered using the acronym "CELL".
  • Capital refers to man-made aids to production, such as machinery, tractors, vehicles, factories, schools, hospitals, and computers.
  • Enterprise refers to entrepreneurs or risk-takers who innovate and produce goods and services to make a profit.
  • Land refers to natural resources, such as farmland and rainforests, where goods can be produced or extracted.
  • Labor refers to human resources, or workers, who can produce goods and services.
  • The world's scarce resources require difficult choices to be made to allocate them effectively, and economics is the study of these choices.
  • There are three fundamental choices to be made in allocating resources: what to produce, how to produce it, and for whom to produce it.
  • In a market economy, businesses decide what to produce based on consumer demand, how to produce it based on cost-effectiveness, and for whom to produce it based on who can afford the goods and services.
  • The government can also intervene to help allocate resources more effectively.
  • Opportunity cost is the cost of the next best alternative foregone when a choice is made, and it is a fundamental concept in economics for measuring the effectiveness of choices.
  • Opportunity cost is calculated by comparing the value of the current choice with the value of the next best alternative that was given up.
  • If the value of the current choice is greater than the value of the opportunity cost, it is considered a good decision, but if the value of the opportunity cost is greater, it is considered a bad decision.

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