IGCSE Economics Chapter 1: The basic economic problem

What are the four factors of production?

Land, labour, capital, and enterprise

What are economic goods?

Goods which are scarce in supply and so can only be produced with an economic cost and/or consumed with a price.

What are free goods?

Goods that are abundant in supply.

What are resources?

Inputs required for producing goods and services.

What is land?

All natural resources

What is labour? 

The human input into the production 

What is capital?

Any man-made resources that is used to produce goods and services

What is enterprise?

Taking risks in setting up or running a firm

What is the reward for land?

Rent

What is the reward for labour?

Wages

What is the reward for enterprise?

Profit

What is the reward for capital? 

interest

Is the supply of land fixed?

Yes, globally, but a country or firm may expand its land holdings.

Why is land geographically immobile?

It cannot be moved.

Why is land occupationally mobile?

It can be used for many different economic activities.

What influences the supply of labour?

Population size, years of schooling, retirement age, age structure, attitudes toward female employment, hours worked, holidays, leave policies.

What determines the quality of labour?

Skills, education, and qualifications.

What affects labour mobility?

Skills, qualifications, transportation, housing, family priorities, and legal regulations.

What influences the supply of capital?

Demand for goods/services, business performance, and savings.

What determines capital quality?

How efficiently it can produce output (e.g., mechanized plant vs. manual factory).

What influences capital mobility?

Nature of the capital (e.g., buildings are immobile; tools are mobile).

What affects the supply of enterprise?

Skills, education, corporate taxes, business regulations.

Is enterprise mobile?

Yes, usually highly mobile geographically and occupationally.

What is opportunity cost?

The next best alternative forgone when a choice is made.

Why does opportunity cost arise?

Because resources are scarce and have alternative uses.

What does a PPC show?

The maximum combinations of two goods an economy can produce using all available resources.

What does an outward PPC shift indicate?

Economic growth