The Economic Problem (Edexcel IGCSE Economics): Flashcards
Exam code: 4EC1
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Define scarcity.
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Define scarcity.
Scarcity is the basic economic problem that resources are finite while human wants and needs are infinite.
Define the basic economic problem.
The basic economic problem is that resources are scarce, forcing choices about how they are used.
Define factors of production.
The factors of production are the scarce resources available in an economy to make goods and services.
Define needs.
Needs are things that are essential to human life, such as shelter, food and clothing.
Define wants.
Wants are non-essential desires, such as better housing or a yacht.
What is economics the study of?
Economics is the study of scarcity and its implications for the allocation of resources in society.
In a free market, how does greater scarcity of a product affect its price?
In a free market, the scarcer a product is, the higher the price consumers will pay.
How does using scarce resources affect a producer's costs?
Using scarce resources means a producer's costs of production are higher than if the resources were more abundant.
A government's decision to provide goods influences what?
A government's decision influences the allocation of resources in society.
True or False?
Workers may want a safer working environment, but their employer may lack the resources to provide it.
True.
Workers are stakeholders in the economic problem: they may want a safer, more comfortable working environment, but their employer may not have the resources to create it.
True or False?
Using land for housing rather than a park shows the choices scarcity forces.
True.
Scarcity means choices must be made, such as using scarce land for essential housing instead of a park.
Due to the problem of scarcity, choices have to be made about the most use of resources.
Due to the problem of scarcity, choices have to be made about the most efficient use of resources.
Define opportunity cost.
Opportunity cost is the loss of the next best alternative when making a decision.
Why does opportunity cost arise?
Opportunity cost arises because scarcity forces choices to be made about how to allocate limited resources.
A consumer buys a new phone instead of new jeans. What do the jeans represent?
The jeans represent the opportunity cost, the loss of the next best alternative.
A producer uses all its resources on electric vehicles instead of petrol vehicles. What do the petrol vehicles represent?
The petrol vehicles represent the opportunity cost of producing electric vehicles.
A government funds free school meals but must close some rural libraries. What do the libraries represent?
The libraries represent the opportunity cost of providing free school meals.
Which groups face opportunity cost in their decisions?
Consumers, workers, firms and governments all face opportunity cost in their decisions.
How can considering opportunity cost affect a decision?
Considering opportunity cost can change the decision, leading to a different allocation of resources.
Ashika books a more expensive flight rather than a cheaper one on a work day. Why?
The opportunity cost of the cheaper flight is a lost day's work income, which outweighs the saving.
True or False?
Opportunity cost is a monetary amount.
False.
Opportunity cost is the loss of the next best alternative, not a sum of money, even though money may be a factor.
True or False?
A firm may reject a supply contract if the opportunity cost of losing existing customers is too high.
True.
A producer may turn down a contract when the lost revenue from existing customers outweighs the gain from the new one.
The Australian government broke its submarine contract with France because that choice carried the lowest cost.
The Australian government broke its submarine contract with France because that choice carried the lowest opportunity cost.
Define Production Possibility Curve (PPC).
A Production Possibility Curve (PPC) shows the maximum possible output an economy can produce of two goods when using all of its factors of production.
Define capital goods.
Capital goods are assets that help a firm or nation produce output, such as a robotic arm in a car factory.
Define consumer goods.
Consumer goods are end products with no future productive use, such as a watch.
Define economic growth.
Economic growth is an increase in the productive potential of an economy, shown by an outward shift of the PPC.
Define constant opportunity cost.
Constant opportunity cost occurs when factors of production switch perfectly between two goods, so one unit given up gains one unit of the other.
Define increasing opportunity cost.
Increasing opportunity cost occurs when factors of production cannot switch perfectly, so one unit given up gains less than one unit of the other.
What does a point on the PPC represent?
A point on the PPC represents the full (efficient) use of an economy's resources.
What does a point inside the PPC represent?
A point inside the PPC represents an economy not using all its resources efficiently, perhaps due to unemployment or recession.
What does a point beyond the PPC represent?
A point beyond the PPC represents an economy working beyond its maximum potential, which is usually not sustainable in the long run.
What causes an outward shift of the PPC?
An outward shift is caused by an increase in the quality or quantity of the available factors of production.
How can the quality of labour be improved to shift the PPC outward?
The quality of labour can be improved through training and education, creating a more productive workforce.
True or False?
A movement along the PPC is the same as a shift of the PPC.
False.
A movement along the PPC reallocates existing resources, whereas a shift changes the economy's productive potential.
True or False?
Allowing more foreign workers into an economy can shift its PPC outward.
True.
More foreign workers increase the quantity of factors of production, shifting the PPC outward.
Economic decline is shown by an shift of the entire PPC.
Economic decline is shown by an inward shift of the entire PPC.
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