1.1.3 The economic problem

• Scarce resources

  resources that are limited in supply so that choices have to be made about their use
• What are the four factors of production?

  Land, Labour, Capital and Enterprise
• Define renewable resources

  resources that can be exploited over and over again because they have the potential to renew themselves (e.g fish stocks or forests)

  Renewable resources can be replenished naturally over time
• Define non-renewable resources

  resources which once exploited cannot be replaced naturally within a human timescale (e.g coal or oil)
• Define the economic problem

  resources have to be allocated between competing uses because wants are infinitive whilst resources are scarce
• Define opportunity cost

  the cost of the next best alternative forgone

  or

  the value of the next best alternative foregone when a choice is made.

  
  

  It represents the true cost of a decision in terms of forgone opportunities.
• Implications of Scarcity

  Choices and Trade-offs: Scarcity necessitates making choices and trade-offs due to limited resources.

  
  

  Opportunity Cost: Every choice involves an opportunity cost, the value of the next best alternative forgone.
• What is opportunity cost important to conusmers?

  Opportunity cost is what has to be given up when spending on an item

  Opportunity cost helps them make informed decisions
• What is opportunity cost to producers?


  Producers allocate resources to maximize profits.

  
  

  Opportunity cost influences production decisions, like choosing which products to manufacture.
• What is opportunity cost to the government?

  Governments allocate budgets to various programmes and policies.

  Opportunity cost informs decisions on allocating resources between healthcare, education, defence etc
• What is capital (as a factor of production)?

  is the stock of manufactured resources used in the production of goods and services
• What is enterprise (as a factor of production)?

  is the seeking out of of profitable opportunities for production and taking risks in attempting to exploit these
• What is labour (as a factor of production)?

  is the workforce
• What is land (as a factor of production)?

  is all the natural resources
• Define free goods

  Goods that are unlimited in supply and which therefore have no opportunity cost