Basic Economic Problem · 4 question types
Past paper frequency (2018 to 2024)
This topic accounts for approximately 6% of your exam marks.
Four factors and their rewards appear occasionally; usually 2 to 4 marks when tested, not on every paper.
The biggest single mistake on this topic is calling money "capital". They are not the same.
Capital is the physical productive asset used to make goods and services. Money is a medium of exchange: a means of paying for things. Money is not a factor of production.
A loan, a bank account balance and a pile of cash are all finance, not capital. The money may be used to buy capital, but the money itself is not a factor of production. There are only four factors: land, labour, capital and enterprise. Money is not a fifth factor.
Example — A new restaurant takes out a £200,000 bank loan and uses it to buy ovens, fridges and tables. The £200,000 is finance / money. The ovens, fridges and tables are capital.
A 2-mark "distinguish between capital and money" question awards one mark for defining capital correctly (man-made productive assets) and one mark for defining money correctly (medium of exchange, not a factor). Both halves are needed.