Economics C1 & C2- The Economic Problem & Factors of Production

Define Scarcity.

• When there is lack of items

• When there is a high demand but low supply

• When there is less food at McDonald’s

• It is a situation where there are not enough resources to satisfy everybody’s wants.

Explain the Nature of the Economic problem

• When there is too much money in a country and the value of money goes down

• When the poverty levels in a country reduce tourism, resulting in higher taxes

• When a country is in too much debt

• It is when unlimited wants exceeds limited resources which leads to the problem of choice which results in opportunity cost. There are 3 questions which every society has to answer

  What to produce? ,how to produce? For whom to produce?

Define economic goods

• A product which requires resources to produce it and therefore has an opportunity cost.

• Goods which are required to produce other goods.

Define free goods

• The good that you receive after a "Buy one get one free" offer

• A product which does not require any resources to make it and so does not have an opportunity cost

Define consumer goods

• Goods that are used only once, and perish once used. Eg- Food, mint

• Consumer goods are those goods which are directly used for final consumption.

Define capital goods

• Capital goods are those goods which are required to produce other goods. 

• Goods that have capital value

Define Merit Goods

• Goods that do not affect the third party negatively and have positive externalities

• Goods with merit value

Define demerit goods

• Goods that affect the third party negatively and have negative externalities

• Goods with decreasing value over time

What is the correct definition for capital

• Man made goods that are used for the production of raw materials

• Raw materials used for the production of man made goods

• Man made goods made for the further production of other goods

Which one of the following is a capital

• Road

• Water

• Fish

• Rocks