5 Questions
Define economics and explain its focus.
Economics is a social science subject that focuses on the analysis of the social systems of production, distribution, and consumption of goods and services.
What is the economic problem? Explain why it occurs.
The economic problem is relative scarcity. It occurs because there are limited resources but unlimited wants and needs. This means that there are not enough resources to satisfy all the wants and needs of individuals and society.
Differentiate between wants and needs, providing examples for each.
Wants are non-essential items that we desire, such as games and holidays. Needs are goods that are crucial to survival, such as food and water.
What are economic goods and free goods? Give examples for each.
Economic goods require a limited resource to produce and therefore have an opportunity cost. Examples include cars, phones, and tables. Free goods, on the other hand, are not scarce and do not have an opportunity cost. Examples include air, seawater, and wind.
Explain the difference between a free good and a good that is given away for free.
A free good refers to a good that is not scarce and has an unlimited supply, attracting no price. On the other hand, a good that is given away for free may initially be a free good when it is abundant, but it becomes an economic good when it is overused and becomes scarce, attracting a price.
Study Notes
Foundation of Economics
- Economics is a social science that analyzes the production, distribution, and consumption of goods and services.
Economic Problem
- The economic problem is caused by relative scarcity, which arises from the mismatch between limited resources and unlimited wants and needs.
Wants and Needs
- Wants: non-essential items that are desired, such as games, holidays, etc.
- Needs: goods that are crucial to survival, such as food, water, etc.
Economic Goods and Free Goods
- Economic Goods:
- Require limited resources to produce
- Have opportunity costs due to scarcity
- Attract a price
- Examples: cars, phones, tables
- Free Goods:
- Not scarce
- Do not have opportunity costs
- Unlimited supply
- Attract no price
- Examples: air, seawater, wind
- Note: A good that is given away for free is not a free good
- Some goods can transition from being free goods to economic goods when they become scarce due to overuse (e.g. clean air)
Test your knowledge of the foundation of economics and the economic problem of scarcity with this quiz. Explore the concepts of limited resources, unlimited wants and needs, and the distinction between wants and needs.
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