The economic problem

• What is the economic problem?

  Scarcity - people's wants are infinite, but resources are limited in supply. Therefore, choices must be made about certain factors, such as how goods and services should be produced and allocated
• What are the resources of a country referred to as?

  The factors of production
• What is the first factor of prodction, and what does it include?

  Capital - This refers to any man-made aid used in the production of goods or services
• What is the second factor of production, and what does it include?

  Enterprise - This is the ability to bring all the factors of production together, and the risk taken in return for profit
• What is the third factor of production, and what does it include?

  Land - This includes all natural resources and raw materials used in the production of goods or services
• What is the fourth factor of production, and what does it include?

  Labour - This refers to the physical effort involved in the production of goods or services
• What is opportunity cost?

  The next best alternative that is forgone when a choice is made
• What is an example of a situation where there is an opportunity cost?

  A farmer choosing to grow more tobacco than plantains, therfore the opportunity cost is growing less plantains
• What are economic goods?

  Goods that are limited in supply, and therefore command a price
• What are free goods?

  Goods that are unlimited in supply
• What are renewable resources?

  Resources that can be replaced naturally after use
• What are non-renewable resources?

  Resources that will eventually be completely depleted