Assessment task 1

1. SteamScot face a ‘basic economic problem’ what is this ‘problem’ and what is the opportunity cost of the replace and repair programme?
The basic economic problem refers to a situation where human wants are unlimited while human resources are finite; it is the economic problem of scarcity of resources. At any one particular time, the resources of the earth are capable of producing a limited number of goods and services, however, human wants exceed limited production possibilities and this gives rise to what is known as the economic problem of scarcity.

In the passage ,Steam Scot have a budget of £2.5 million and this can be spent on adding a new route are repairing and replacing existing railways; the choice of spending the money is known as an opportunity cost . If the company decides to spend the money on a new route, the opportunity cost is the foregone repairing and replacing of existing railways and vice versa. The opportunity cost of any economic action is the cost of the action in terms of the next best alternative given up and it is important to keep in mind that this is the real cost rather than the financial cost which is essentially the money cost. By deciding to repair and replace existing railway lines the opportunity cost is the new routes foregone.

2. From the table in the previous passage, construct a demand and supply schedule on a diagram and identify the equilibrium price and quantity.

According to the passage, Steam Scot is operating at a market price of 4 pounds with passengers totaling 60,000 units. The equilibrium price and quantity is the market price at which the supply of product is equal to the demand for that product, in other words, there is no over-consumption or over-production of the item in question. It is a situation of balance in the marketplace. The equilibrium price and quantity in