The Basic Economic Problem
Evaluate, using examples, the problem of scarcity and the requirement to make choices
A good example of the problem of scarcity would be an article that appeared in The Times. The NHS had to make the decision of whether to finance a drug that protects healthy people against HIV, or a person whom was likely to die from a rare blood cancer, because resources are limited. The decision was to stop the cancer treatment. The basic economic problem, that of scarcity, is that decisions must be made in order to cope with our limited resources in the face of people's unlimited wants. In this example, the NHS had to deal with limited resources, scarcity, and therefore had to make a choice.
explain what is meant by normative and positive statements
A normative statement is a statement which cannot be supported or refuted because it is a value judgement. A Posititve statement one which can be supported or refuted by evidence. For example, the sentence "The government should lower the rate of income tax because it encourages people to work harder," is a normative statement. However, the sentence "Lowering the rate of income tax encourages people to work harder," would be a positive statement because it is a supportable argument.
Explain what is meant by scarcity
Scarcity is the situation that arises because people have unlimited wants in the face of limited resources. Scarcity is what forces people to make choices. A family has to live on a fixed budget, so it must make decisions on where to allocate their money.
explain what is meant by the basic 'economic problem'
The basic economic problem is that of scarcity and choice. This is because people have infinite wants in the face of limited resources, therefore decisions have to be made. Resources must be allocated between competing uses.
evaluate the implications of the basic 'economic problem'
The basic economic problem means that every society has to decide what to produce, how best to produce it, and for whom to produce it.
Explain the nature and role of the different factors of production as economic resources
The factors of production are resources that are used in the production process itself, the inputs. These include labor, capital, land, and entrepreneurship.
Explain the role of economic agents: -government -firms -households
Economic agents are key groups of decision makers. Governments must makes decisions regarding laws, legislation, expenditure, and taxation. Firms make decisions regarding start up costs, wages my machinerym who to employ, the location of the firm, as well as what product is being produced. All firms have the objective to make a profit. Households must make decisions on expenditure, as income is finite but wants are unlimited.
Explain what is meant by economic goods and free goods
Economic goods are resources that are scarce, and tradeable (such as shoes or a banana), therefore having a degree of opportunity cost. Free goods are resources that are not scarce, are not tangeable or necessarily tradeable (such as air or the ocean). With free goods, unlike economic goods, no resources need be sacrificed.
Distinguish between economic goods and free goods
Economic goods are resources that are scarce, while free goods are resourses that are not scarce.
Explain what is meant by 'needs' and 'wants
Needs are the minimum that is necessary for a person to service as a human being, while wants are the desires for the consumption of goods and services. Needs would be clothing, shelter, medicine, and basic education. Wants, which people have an infinite amount of, would be phones, shoes, and makeup among infinite others .
Distinguish between 'needs' and 'wants'
Needs are what people need to survive and to support a basic lifestyle. Wants, which are infinite, are additional innececities which are not needed the survival of a human being.
distinguish between normative and positive statements
Normative statements are statements of opinion, while positive statements are statements of fact that can be proven or disproven with valid evidence.