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THE BASIC ECONOMIC PROBLEM - Q and A Unit 1

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22 views8 pages

THE BASIC ECONOMIC PROBLEM - Q and A Unit 1

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an043973
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THE BASIC ECONOMIC PROBLEM

THE BASIC ECONOMIC PROBLEM

1. The economic problem: It is due to scarcity that there


exists a basic economic problem of not being able to satisfy
the wants of all people.

2. The economic problem can never be solved because


the economic problem is scarcity. As we know
the wants are infinite but resources are limited. The wants
exceed resources as wants grow faster than resources

NATURE OF THE BASIC ECONOMIC PROBLEM

At any given point of time in an economy, output is limited


by the resources and the technology available. There is ther
efore a basic condition of scarcity. On the other hand, the
wants of the consumers are infinite or unlimited and the
ability of the resources to satisfy those wants however are
limited. There is therefore a need to make a choice as
a result of this scarcity. This choice will be in terms of what
to produce, how to produce and for whom to produce.

1. Economic goods: An economic good has a benefit to the


society.
It is a consumable good that is useful to people but at the
same
time scarce in relation to its demand. Also economic goods
have a price. Human effort is required to obtain economic g
oods. Economic goods come with an opportunity cost.
Examples of economic goods include: Piped gas,,
electricity, cars, mobiles etc.

2. Free goods:
It is a product that does not require any resources to make it
and so does not have an opportunity cost. Example of free
goods are: air, water, wind etc.

Topic wise Questions and mark schemes on Basic


economic problem

1.Explain the economic problem of scarcity [3]

Ans: The economic problem of scarcity is that there are


limited resources and the wants are infinite and the choices
have to be made that come with an opportunity cost

Markscheme says.....

• there are limited/finite resources (1)

• to satisfy unlimited/infinite wants (1)

• where choices have to be made/there is an opportunity


cost (1).

2.Discuss whether an ageing population should always


be considered an economic problem [8]

Answer: Ageing population is where people are living


longer and therefore the average age of the population is
rising.

 a rise in the dependency ratio, i.e. the ratio of the


working population to the dependent population
becomes lower
 a change in the labour force; older workers may be
less geographically and occupationally mobile (the
retirement age is likely to go up)
 older workers may lack the required skills/training
 a higher demand for health services
 a higher demand for welfare services
 a rise in the cost of pensions
 all of this may require taxation to be increased
 a change in the pattern of demand.

3. The economic problem exists in every country, but


there are different ways to try to solve it.[4]

(a) Discuss the nature of the economic problem.

Mark scheme:

The nature of the economic problem is:

 scarcity
 limited resources
 unlimited wants of consumers
 choices will need to be made (idea of opportunity
cost)
 in terms of what to produce, how to produce and for
whom to produce

4. (a) What is meant by the ‘economic problem’? [2]

 wants exceeding resources or wants are unlimited


 infinite whilst resources are limited/finite

TOPIC 2 FACTORS OF PRODUCTION AND THEIR


REWARDS
FACTORS OF PRODUCTION AND THEIR REWARDS

The economic resources of land, labour, capital and enterprise


are called as the factors of production.
1.
Land: It refers to all the natural resources used in the producti
on such as oil, coal etc. In addition, the water, plants, animals
etc are also included. Example: Farmland, minerals, sea. Land
resources are the raw materials in the production process.
These resources can be renewable, such as forests, or
nonrenewable such as oil or natural gas. Land gives us rent

2. Labour: Labour stands for the


human effort (mental or physical) that is used in producing go
ods and services. Example: A teacher, workers. In fact all
people with their efforts, abilities and skills are termed as
labour, labour gives us wages

3. Capital: Capital refers to all the human made (man-


made) goods used in production. Example: Machinery and
equipment, factories, conveyor belts, computers, delivery vans
etc. Capital gives us interest.

4. Enterprise: It refers to the risk bearing and the key decision-


making function in a business.
This is needed as some events cannot be anticipated beforehan
d and might not qualify for being insured. Example: An entrep
reneur. Enterprise gives us profit

IGCSE topic wise economic questions: factors of


production

Define enterprise:

Enterprise is a factor that takes the risk in bringing the other fa


ctors together or combining the other factors in order to
produce goods and services to make profits.
Enterprise involves the taking of decisions in terms of what
to produce and how to produce it.

Enterprise is taken by entrepreneurs and


shareholders who receive profit as rewards.

Using examples, define the factor of production capital

Answer:

Capital can be defined as any human-made good that is used


to produce other
goods and services; that is they are aids to production.

Examples of capital are factories, machinery, tools, equipment


etc.

2. Define the term capital and explain why this factor of


production is important in the production process. [4]

(a) Up to 2 marks for a definition of capital:

• man-made physical goods used in production, e.g. machines,


tools, factories, roads (do NOT accept money).

Up to 2 marks for an explanation of importance:

• idea of capital-intensive production, making greater use of


latest, more technologically advanced, machines, tools and
equipment.

3. Labour is one of the most important factors of


production. (a) Using examples, define the factor of
production, namely labour. [4]
• labour represents human effort/capital/contribution (1)

• the physical (1) and mental (1) contributions of employees to


the production process (accept skilled and unskilled) •

any two examples of jobs, this could be specific examples of


physical contribution, e.g. mining or car production (1) and
mental contribution, e.g. teacher or lawyer (1)

MOBILITY OF FACTORS OF PRODUCTION


MOBILITY OF FACTORS OF PRODUCTION

MOBILITY OF FACTORS OF PRODUCTION IS AFFECTED BY


THE FOLLOWING:

1. Difference in the price and the availability of housing in different


areas and countries

2. Family ties

3. Difference in the educational system in different areas and


countries

4. Restrictions on the movement of workers

5. Lack of information

FUNCTIONS OF MONEY:

The Following are the functions of money

 Money is a medium of exchange


 Money is a measure of value. Money acts as a unit of account, allowing
us to compare and state the worth of different goods and services.
 Money is a store of value.
 Money is a means of deferred payment.

FACTORS AFFECTING DEMAND OF A PRODUCT


FACTORS AFFECTING DEMAND OF A PRODUCT:

The following factors affect the demand of a product:

1. The price of the product

2. Changes in income

3. Price of substitute goods/services

4. Price of complementary goods/services

5. Changes in tastes and preferences of customers

FACTORS AFFECTING BORROWING


Factors affecting borrowing:

1. Availability of loans and overdrafts

2. Rate of interest
3. Confidence

4. Social attitudes

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