SCARCITY, CHOICE, AND OPPORTUNITY COST

• What is the Fundamental economic problem?

  Scarce resources, but unlimited wants
• What is meant by Resources?

  Inputs available for the production of goods and services
• Define Wants

  Goods and services people would like to have, but are not always realised
• Define Needs

  Goods necessary for survival, an essential, like food
• What is Scarcity?

  A situation where wants and needs are greater than the resources available
• Define Choice

  Resources are scarce so individuals, firms, and government have to consider an alternative
• What is meant by the Factors of production?

  Resources or inputs available in an economy that is used in the production of goods and services
• What is a Firm?

  Any business that hires the factors of production to produce goods and services
• Define Opportunity cost

  The cost expressed in terms of the next best alternative that is foregone when a choice is made (simply put to words: the foregone benefit)
• WHY DOES THE FUNDAMENTAL ECONOMIC PROBLEM HAPPEN?Because resources to produce goods and services are scarce, or limited whilst people's needs and wants are unlimited, no matter the income.
• What do firms, governments, and individuals have to do to face the fundamental economic problem?

  Make choices due to scarcity of resources, which involves taking decisions on how to allocate scarce resources between many competing uses
• Opportunity cost shows the real cost of the choice made
• Basic questions of resource allocation

  • What to produce?
  • How to produce?
  • For whom to produce?
• OPPORTUNITY COST:

  • With unlimited wants and limited resources, individuals, firms, and governments have to choose which wants to satisfy