The economic problem

• What is the basic economic problem?

  Scarcity
• Why do choices have to be made in economics?

  Because wants are unlimited and resources are finite
• If you have £1 and can buy either a chocolate bar or a packet of crisps, what does this illustrate?

  The concept of scarcity and choice
• What is opportunity cost?


  The value of the next best alternative forgone
• In the example of choosing between crisps and a chocolate bar, what is the opportunity cost of choosing the crisps?

  The chocolate bar
• What does the opportunity cost of keeping a car worth £15,000 that depreciates by £5,000 represent?


  The potential gain from selling the car
• Why is opportunity cost important for economic agents?

  It helps them make informed decisions about resource allocation
• What might a producer have to choose between when considering opportunity cost?

  Hiring extra staff or investing in a new machine
• What are the four factors of production?

  Land, Labour, Capital, Entrepreneurship
• What is the description and reward for each factor of production?

  • **Land**: Natural resources; Reward: Rent
  • **Labour**: Human workforce; Reward: Wages
  • **Capital**: Man-made resources; Reward: Interest
  • **Entrepreneurship**: Risk-taking and innovation; Reward: Profit
• What is the difference between renewable and non-renewable resources?

  Renewable resources can be replenished, while non-renewable resources cannot
• Give an example of a renewable resource.

  Oxygen
• Give an example of a non-renewable resource.

  Coal
• What happens if a renewable resource is consumed faster than it is replenished?

  The stock of the resource will decline over time
• What is the significance of managing renewable resources in environmental economics?

  To prevent depletion and ensure sustainability
• How can the decline of non-renewable resources be mitigated?

  By recycling and finding substitutes
• What is the relationship between scarcity and the choices economies must make?


  Scarcity forces economies to decide what to produce, how to produce it, and for whom
• What is the opportunity cost of a choice?


  The cost of the next best option that is given up
• If a consumer has limited income, how will they make choices?


  Based on what gives them the greatest level of satisfaction
• How do producers make decisions regarding their limited resources?


  Based on profit maximization
• How does the government decide on spending its limited tax revenues?


  By maximizing social welfare
• What is the value of a worker referred to as?

  Human capital
• How do different industries combine the factors of production?

  In different combinations based on their needs
• What is an example of a labour-intensive industry?


  Construction
• What is an example of a capital-intensive industry?

  Manufacturing
• What is an example of a land-intensive industry?

  Agriculture
• What is the role of an entrepreneur in the factors of production?

  To take risks and innovate by combining the other factors
• What do successful entrepreneurs earn from their activities?

  Profit