Economics Exam Unit 1

Economics Exam Unit 1

GRADED A+ (ACTUAL EXAM ) Questions and Answers (Solved)

• Economic Problem

Answer:

-fundament problem faced by all societies which is how to allocate their scarce resources in a society with unlimited wants.-Due to this problem, choices have to be made on how the allocate these resources of land, labour, capital and enterprise (factors of production) effectively to satisfy the most wants

Note: use production possibility frontier to explain factors of production

-therefore, preferences have to ranked, ultimately leaving some wants unsatisfied

• Scarcity

Answer:

-concept that arises from economic problem -concept that acknowledges resources aren't unlimited, therefore are scarce. Refers to both physical resources e.g. land and intangible resources e.g. time

Absolute scarcity: refers to physical limitation of resources such as land,

water etc.

Relative scarcity: refers to value placed on these resources e.g. diamonds

as they are not absolutely scarce but as society values them highly they are relatively scarce.

• Opportunity Cost

Answer: Refers to the economic cost of the next best alternative forgone

when making choices. e.g. if student goes to university, the opportunity cost if what else they have been doing in that time spent as university e.g.working etc.

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• Relationship between scarcity and opportunity cost

Answer: Because resources are scarce there will always be an opportunity

cost when making decisions.

• Opportunity cost in addressing economic problem

Answer: individuals, businesses and governments must weigh up the

benefits and costs of their decisions to decipher if they are using their resources efficiently to maximise satisfaction or profit or if there is a better decision.

• Production Possibility Frontier- why?

Answer: Demonstrates how opportunity costs arise when individuals or

the community make choices.

Note: refer to book for graphs

• Changes to production possibility frontier

Answer:

-new technology -new resources -unemployment (resources not fully employed)

• Types of Resources (factors of production)

Answer: Resources- Land- natural re- sources (reward: rent) Labour- human effort, physical and mental, used to produce goods and

services. (reward: wages)

Capital- capital goods are used to produce other goods e.g. infrastructure

(reward: Interest)

Enterprise- organising the above factors for the purpose of production

(Reward: profit)

The quantity and quality of an economies factors of production can influence how wealthy or poor that country will be.

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