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THE BASIC ECONOMIC PROBLEM

 THE BASIC ECONOMIC PROBLEM

1. The economic problem: It is due to scarcity that there exists a basic economic problem of not being able to satisfy the want's of all people.

2. The economic problem can never be solved because the economic problem is scarcity. As we know the wants are infinite but resources are limited. The wants exceed resources as wants grow faster than resources 

NATURE OF THE BASIC ECONOMIC PROBLEM

At any given point of time in an economy, output is limited by the resources and the technology available. There is therefore a basic condition of scarcity. On the other hand, the wants of the consumers are infinite or unlimited and the ability of the resources to satisfy those wants however are limited. There is therefore a need to make a choice as a result of this scarcity. This choice will be in terms of what to produce, how to produce and for whom to produce.

1. Economic good: An economic good has a benefit to the society. It  is a consumable good that is useful to people but  at the same time scarce in relation to its demand. Also economic goods have a price. Human effort is required to obtain economic goods. Economic goods come with an opportunity cost. Examples of economic goods include: Piped gas,, electricity, cars, mobiles etc.

2. Free good: It is a product that does not require any resources to make it and so does not have an opportunity cost. Example of free goods are: air, water, wind etc.

 

Topic wise Questions  and  mark schemes on Basic economic problem

1.Explain the economic problem of scarcity [3]

Ans: The economic problem of scarcity is that there are limited resources and  the wants are infinite and the choices have to be made that come with an opportunity cost

Markscheme says.....

• there are limited/finite resources (1)

• to satisfy unlimited/infinite wants (1)

• where choices have to be made/there is an opportunity cost (1). 

2.Discuss whether an ageing  population should always be considered an economic problem [8]

Ans: Ageing population is  where people are living longer and therefore the average age of the population is rising .

  • a rise in the dependency ratio, i.e. the ratio of the working population to the dependent population becomes lower
  • a change in the la
  • Labour force; older workers may be less geographically and occupationally mobile (the retirement age is likely to go up)
  • older workers may lack the required skills/training
  • a higher demand for health services
  • a higher demand for welfare services
  • a rise in the cost of pensions
  • all of this may require taxation to be increased
  •  a change in the pattern of demand. 

3.The economic problem exists in every country, but there are different ways to try to solve it.[4]

(a) Discuss  the nature of the economic problem.

Mark scheme:

The nature of the economic problem is:

  • scarcity
  • limited resources
  • unlimited wants of consumers
  • choices will need to be made (idea of opportunity cost)
  • in terms of what to produce, how to produce and for whom to produce 

4. (a) What is meant by the ‘economic problem’? [2]

  •  wants exceeding resources or wants are unlimited
  • infinite whilst resources are limited/finite 

 

TOPIC 2 FACTORS OF PRODUCTION AND THEIR REWARDS

  FACTORS OF PRODUCTION AND THEIR REWARDS

The economic resources of land, labour, capital and enterprise are called as the factors of production.

1. Land: It refers to all the natural resources used in the production such as oil, coal etc. In addition, the water, plants, animals etc are also included. Example: Farmland, minerals, sea. Land resources are the raw materials in the production process. These resources can be renewable, such as forests, or nonrenewable such as oil or natural gas.Land gives us rent

2. Labour: Labour stands for the human effort (mental or physical) that is used in producing goods and services. Example: A teacher, workers. Infact all people with their efforts , abilities and skills are termed as labour, labour gives us wages

3. Capital: Capital refers to all the human made (man-made) goods used in production. Example: Machinery and equipment, factories, conveyor belts, computers, delivery vans etc. Capital gives us interest.

4. Enterprise: It refers to the risk bearing and the key decision-making function in a business. This is needed as some events cannot be anticipated beforehand and might not qualify for being insured. Example: An entrepreneur. Enterprise gives us profit

 

IGCSE topic wise economic questions  : factors of production

Define enterprise

Enterprise is a factor that takes the risk in bringing the other factors together or combining the other factors in order  to produce goodsand services to make profits . Enterprise involves the taking of decisions in terms of what to produce and how to produce. Enterprise is taken by entrepreneurs example shareholders who receive profit as reward

Using examples, define the factor of production capital

Ans: Capital can be defined as any human-made good that is used to produce other goods and services; that is they are aids to production. Examples of capital are factories, machinery, tools, equipments etc.

 

2.Define the term capital and explain why this factor of production is important in the production process. [4] 

(a) Up to 2 marks for a definition of capital:

• man-made physical goods used in production, e.g. machines, tools, factories, roads (do NOT accept money).

Up to 2 marks for an explanation of importance:

• idea of capital-intensive production, making greater use of latest, more technologically advanced, machines, tools, equipment. 

 

3.Labour is one of the most important factors of production. (a) Using examples, define the factor of production, labour. [4] 

 • labour represents human effort/capital/contribution (1)

• the physical (1) and mental (1) contributions of employees to the production process (accept skilled and unskilled) •

any two examples of jobs, this could be specific examples of physical contribution, e.g. mining or car production (1) and mental contribution, e.g. teacher or lawyer (1) 

 

MOBILITY OF FACTORS OF PRODUCTION

MOBILITY OF FACTORS OF PRODUCTION

MOBILITY OF FACTORS OF PRODUCTION  IS AFFECTED BY THE FOLLOWING :

1.Difference in the price and the availability of housing in different areas and countries

2. Family ties

3. Difference in the educational system in different ares and countries

4. Restrictions on the movement of workers

5.Lack of information

FUNCTIONS OF MONEY:

Following are the functions of money

1. Acts as a medium of exchange

2. It is a standard of deferred payments

3. It is a nit of account

4. It is a store of value

FACTORS AFFECTING DEMAND OF A PRODUCT

FACTORS AFFECTING DEMAND OF A PRODUCT:

The following factors affect the demand of a product:

1. The price of the product

2. Changes in income

3. Price of substitute goods/services

4. Price of complementary goods/services

5.Changes in income

6.Changes in tastes and preferences of customers

 

 

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FACTORS AFFECTING BORROWING

Factors affecting borrowing:

1.Availability of loans and overdrafts

2. Rate of interest

3. Confidence

4. Social attitudes

IGCSE ECONOMICS PAST PAPERS

IGCSE ECONOMICS PAST PAPERS-MAY-SESSION