The basic economic problem

• Economic Problem - There are unlimited human needs but limited resources
• Scarcity means that there are not enough resources available to satisfy all our wants, so choices have to be made about how they will be used.
• The opportunity cost is the value of what we give up to get something else.
• Labour (Human Resources)
• Land (Natural Resources)
• In this example, the opportunity cost of producing more food is less clothing. In other words, if the economy chooses to increase production of food by using more land, it must accept that fewer clothes will be produced as a result.
• Enterprise (Organisation & Skills)
• a movement along a PPC shows reallocation
• an increase in the quantity/quality of a resources will cause the curve to shift to the right
• If there are no externalities then the market equilibrium price is efficient because it reflects the true social costs and benefits of consumption and production.
• A decrease in the quantity or quality of a resource will cause the curve to shift to the left
• Factors of production are the inputs used to produce goods and services