Basic Economic Problem: Choice and allocation of resource

Which terms summarise the nature of the economic problem?

• finite resources and limited wants

• finite resources and unlimited wants

• infinite resources and limited wants

• infinite resources and unlimited wants

Which statement about the factors of production is correct?

• A river from which a company draws water is called land.

• Raising finance for a company is called capital.

• Supervisors employed in a company are called enterprise.

• The owner of a company is called labour.

Answer explanation

The factors of production are land, labor, capital, and entrepreneurship. These are the resources used by firms to produce goods and services.

Option A is correct because land refers to natural resources such as water bodies, forests, minerals, and other resources found in nature.

Option B Money is not a factor of production because it is not directly involved in producing a good or service. Instead it facilitates the processes used in production by enabling entrepreneurs and company owners to purchase capital goods or land or to pay wages.

Option C is incorrect because enterprise refers to the ability to combine the other factors of production in a way that creates value. Supervisors are not considered a factor of production but rather part of the labor force.

Option D is incorrect because the owner of a company is not a factor of production but rather an agent of production who brings together the other factors of production to create goods and services.

Which economic change would increase the problem of scarcity?

• a decrease in fish stocks

• a discovery of a new oil field

• an increase in labour productivity

• a reduction in waste

The govemment of a country with a rapidly increasing population decides to switch resources from investment to increased subsidies to farmers.

What is the opportunity cost of this decision?

• the profit earned by farmers

• the rent of the land on which food is grown

• the reduction in investment

• the wages of the farm workers

A farmer pays a landowner for the use of a field.

What is the income to the landowner called?

• interest

• profit

• rent

• wages

What makes choice an important element in the basic economic problem?

• Increased demand leads to higher market prices.

• Limited resources have many alternative uses.

• Reaching a market equilibrium may take a long time.

• Scarce economic resources are distributed equally.

What is a factor of production?

• an advantage of producing on a large scale

• a resource used to produce goods and services

• a sub-section of a manufacturing process

• a unit of output

A government is faced with the choice of spending on either education or healthcare.

Of what is this an example?

• conservation of resources

• monetary policy

• opportunity cost

• substitution of factors

Each of the factors of production earns an income.What are the incomes for land and capital?

• A

• B

• C

• D

A firm decides to stop manufacturing ovens and to produce washing machines instead.

What is the opportunity cost to the firm?

• the additional washing machines produced

• the cost of producing ovens

• the cost of producing washing machines

• the loss of the production of ovens