1.2

• What is the economic problem?

  Basically, people want more than is available. To try to reduce the economic problem, choices and decisions have to made:

  • How should goods and services be produced? (should firms use more tech, have large-scale production or use incentives to motivate managers?)
  • What should be produced (should resources be used to make fizzy drinks, machines or hospitals?)
  • For whom should the goods and services be produced for (should they be provide to people who can afford them or by the government for everyone?)
• Scarce Resources

  When there is an insufficient amount of something to satisfy all wants.
• Unlimited Wants

  The infinite desire for something.
• Scarce Resources + Unlimited Wants

  Scarce resources mean there are fewer things to make goods + services desired. Limited, finite. Restricts which goods can be made.

  
  

  Unlimited wants = desire for anything consumer wants, even if they don't have resources to purchase it. There are too many different uses for the resources. (competing uses)

  
  

  Once a resource is used for one purpose, it is often used up and can't be used for anything else.
• Opportunity Cost

  The next best alternative given up when making a choice.
• Opportunity Cost - More info

  Once a decision is made on a use for scarce resources, then other options for their use are sacrificed.

  
  

  Can be used to compare what could have been gained from different uses of resources.

  
  

  Can help decided which goods + services should be produced.

  
  

  Missed benefits other options may have given consumers.