Basic Economic Problem: 2

In which case is it possible to set the level of reward before production takes place for the first factor of production but not for the second?

• A

• B

• C

• D

What is the cause of economic scarcity?A B C D

• limited wants with limited resources

• limited wants with unlimited resources

• unlimited wants with limited resources

• unlimited wants with unlimited resources

How is an immediate effect of an increase in unemployment illustrated on a production possibility curve diagram?

• a movement of the production point closer to the curve

• a movement of the production point further inside the curve

• a shift of the production possibility curve inwards

• a shift of the production possibility curve outwards

Answer explanation

The PPC represents the maximum amount of goods and services that an economy can produce given its resources and technology. When there is an increase in unemployment, it means that some of the economy's resources (i.e., labor) are not being utilized to their full potential. This leads to a decrease in the economy's potential output, resulting in a movement of the production point inside the PPC.

A shift of the PPC inwards (option 3) indicates a decrease in the economy's productive capacity, but it may not be an immediate effect of unemployment. Similarly, a shift of the PPC outwards (option 4) suggests an increase in the economy's potential output due to factors such as technological advancements or an increase in resources, which are not necessarily related to unemployment.

What is a factor of production?

• a semi-skilled, young worker

• direct taxes received by a government

• shares in a manufacturing company

• stocks of money held a bank

Economics textbooks often start by identifying the existence of the basic economic problem.What is it that makes this problem 'basic'?

• It affects all economies and individuals.

• It is the most urgent target of government economic policy.

• It only affects low-income developing economies.

• It relates to the production of raw materials in the primary sector.

Which statement about the factors of production is correct?

• Capital includes man-made machines that do not keep their original value.

• Enterprise is a natural factor of production that cannot be taught.

• Labour is an immobile factor that does not change its skill level.

• Land is only agricultural fields that cannot be improved by human effort.

The diagram shows two production possibility curves for an economy. What could have caused the change in the economy's production possibility curve from XX to YY?

• a decrease in the price level

• a large number of industrial disputes

• a major earthquake

• an increase in unemployment

Answer explanation

The production possibility curve (PPC) represents the maximum amount of goods and services that an economy can produce given its resources and technology. An inward shift of the PPC indicates a decrease in an economy's potential output.

A major earthquake (C) could cause of an inward shift in the economy's PPC. The destruction caused by a natural disaster like an earthquake can lead to a decrease in an economy's resources and productive capacity, resulting in a decrease in the production of goods and services.

A decrease in the price level (A), a large number of industrial disputes (B), or an increase in unemployment (D) could affect an economy's output, but they are less likely to cause an inward shift in the PPC directly.

In , an inward shift in an economy's PPC suggests a decrease in its productive capacity.

What is the basic economic problem?

• finite resources and limited wants

• finite resources and unlimited wants

• infinite resources and limited wants

• infinite resources and unlimited wants.

New oil reserves are discovered.What has increased in supply?

• capital

• enterprise

• labour

• land

The diagram shows production possibility curves (PPC) for a country that can produce

agricultural products or manufactured products.

Its current PPC passes through points Q and S but the country is currently experiencing unemployment.

If there is now full employment at the same time as new agricultural techniques enable an increase in productivity, what would be the movement on the PPC diagram?

• PtoR

• PtoS

• Qto R

• Sto Q