Chapter 1

The nature of the economic problem

1. a) Define Labour.
Labour is defined as all human effort used in the production of goods and services
b) Define Land
Land means all natural resources used in the production of goods and services. E.g, sea
water, forest, sun, river, ocean.
(c) Define Factors of production.
Factors of productions are resources that are used as input to produce goods and
services such a land, labour, capital, and enterprise.

2. Serbia is the world’s second largest producer of raspberries, a product with elastic demand.
Consumers experience the economic problem when buying raspberries. Few raspberry farm
workers are members of trade unions. Membership pf trade unions in Serbia has fallen to 20%
of all workers by 2020. In that year, Serbia had more state pensioners than workers.
b) Explain how the economic problem results in consumers having to make a choices. [4]
Point 1: Consumers have unlimited wants but only limited money to spend.
Explanation 1: This creates scarcity, which means it is impossible for a person to buy
everything they want.
Point 2: Because of this scarcity, people are forced to make choices the most important
items.
Explanation 2: Making a choice results in an opportunity cost, which is the next best item to
give up.
Consumers have unlimited wants but only limited money to spend. This creates scarcity,
which means it is impossible for a person to buy everything they want. Because of this
scarcity, people are forced to make choices the most important items. Making a choice
results in an opportunity cost, which is the next best item to give up.
3. The economic problem results in choices and opportunity cost. People have to decide what
job to do and where to live. In recent years Australia has recruited teachers from a number of
countries including Canada, the UK and the US. Most of these teachers specialise in a single
subject.
c) Explain the economic problem and why it is always likely to exist. [4]
Point 1: The economic problem is having unlimited wants but only limited resources.
Explanation 1: This mismatch causes scarcity, meaning there are never enough resources to
satisfy everyone.
Point 2: This problem will always exist because human wants continue to grow and change.
Explanation 2: Since wants always grow faster than the resources, scarcity is a permanent
problem.
The economic problem is having unlimited wants but only limited resources. This mismatch
causes scarcity, meaning there are never enough resources to satisfy everyone. This problem
will always exist because human wants continue to grow and change. Since wants always
grow faster than the resources, scarcity is a permanent problem.

4. The economic problem means that countries have to decide what to produce. Ghana uses
much of its agricultural land to grow cocoa. Cocoa is sold to chocolate producers. The world’s
main chocolate producer in 2019 was a US firm with a 14% share of the global market. That firm
was the largest seller of chocolate in the US and, if it merges, may become a monopoly.
a) Define the economic problem. [2]
The economic problem is the situation of scarcity, where there are unlimited wants but finite
resources available to satisfy those wants.

5. Nearly one million people in Cairo, the capital city of Egypt, live in crowded, unhealthy
housing. One reason why people lack basic necessities, including adequate housing, is
unemployment. In 2019, nearly 10% of Cairo’s workers did not have a job. Other citizens of
Cairo live in luxury, in houses costing more than $1 million. Many of Cairo’s rich adults grew up
in rich families.
a) Identify two basic necessities, other than housing. [2]
1. Food.
2. Water.

6. There is a smaller proportion of large firms in Africa than in Asia. The two African countries
with the largest firms are Nigeria and South Africa. These two countries’ firms have more capital
goods than most other African countries’ firms. Firms in South Africa produce a range of
products including gold and petrochemicals. In recent years, a number of African firms have
developed into multinational companies (MNCs), producing mainly in other African countries.
a) Define a capital good. [2]
A capital good is a man-made item used to produce other goods and services such as a
machine, tool, or factory.

7. The economic problem results in people having to make choices. In Bulgaria, in recent years,
people have changed how much they spend. The Bulgarian government is encouraging people
to spend more. It is trying to ensure that deflation does not return and that the country will
continue to experience an increase in output.
c) Explain how the economic problem results in people having to make choices. [4]
Point 1: People have limited resources like time and money.
Explanation 1: Because these are limited, people cannot have everything they
desire at the same time.
 Point 2: Because of this scarcity, people are forced to make choices and prioritize which
goods or services are most important to purchase.
Explanation 2 Making a choice involves opportunity cost, which is the next best alternative
must be given up to get the chosen product.
People have limited resources like time and money. Because of this scarcity, people
are forced to make choices and prioritize which goods or services are most important to

purchase. This forces people to prioritize and choose the things they need most.
Making a choice involves opportunity cost, which is the next best alternative must be given
up to get the chosen product.

8. Farms in the USA are getting larger. One dairy farm in the state of Indiana has over 38000
cows. Farms in the USA compete with farms in both developed and developing countries. The
value of the farms’ exports of milk appears in the trade in goods section of the current account
of the USA’s balance of payments.
a) Identify two examples of capital goods that may be used by a farm. [2]
Two examples of farm machinery are a tractor and a milking machine.

9. It is forecast that by 2022 India will overtake China as the world’s most highly populated
country. China’s birth rate is lower than India’s and China has a higher proportion of its
population aged over 65. By 2050, it is estimated that 500 million Chinese people and 330
million Indian people will be over 65. Changes in population size and age structure affect the
quantity and quality of a country’s resources.
a) Define resources. [2] (KN)
Resources are the inputs used to produce goods and services, including land, labor, capital, and
enterprise.

c) Explain two reasons why the quality of a country’s resources may increase. [4]
Point 1: Improved education and training for the labour force.
Explanation 1: This raises labour productivity and allows them to produce higher-quality
goods and perform more tasks.
Point 2: Advances in technology for capital goods.
Explanation: Advanced machines are more efficient, which means they can produce more
output with fewer mistakes.

The quality of a country’s resources may increase by Improving education and training for
the labour force. This raises labour productivity and allows them to produce higher-quality
goods and perform more tasks. Another reason is advances in technology for capital goods.
Advanced machines are more efficient, which means they can produce more output with
fewer mistakes.