Economics Unit 1.1

• Goods


  Things that are produced in order to be sold
• The planet we live on contains many resources that are used to produce goods we like to consume. However, there is a problem.
• All countries have resources, such as water, minerals, soil, plants, animals and people. However, in any country there is a finite quantity of these resources, which means that the quantity available is limited.
• Finite resources


  Having an end or a limit
• Infinite resources


  Without limits
• Needs


  Basic requirements for human survival
• Wants


  People's desires for goods and services
• The basic economic problem occurs because the world's resources are scarce or finite and people's wants are infinite. Demand for resources is greater than their supply.
• Basic economic problem


  Allocation of a nation's scarce resources between competing uses that represent infinite wants
• Scarce resources


  Amount of resources available when supply is limited
• Allocate


  To decide officially that a particular amount of money, time, etc. should be used for a particular purpose
• To overcome the basic economic problem, important decisions have to be made about what to produce, how to produce, and for whom to produce.
• Opportunity cost


  Cost of the next best alternative given up (when making a choice)
• Expenditure


  Spending by a government, usually a national government
• Opportunity cost arises because a sacrifice has to be made when making a choice.
• Production possibility curve (PPC)


  Line that shows the different combinations of two goods an economy can produce if all resources are used up
• Consumer goods


  Those purchased by households such as food, confectionery, cars, tablets and furniture
• Capital goods


  Those purchased by firms and used to produce other goods such as factories machinery, tools and equipment
• At points on the PPC, all resources in the country are being fully used. At points inside the PPC, there are unemployed resources.
• Combinations of goods outside the PPC are not possible given the country's resources.
• Moving along the PPC involves an opportunity cost, as producing more of one good means producing less of the other.
• Economic growth


  Increase in the level of output by a nation
• Causes of economic growth include new technology, improved efficiency, and education and training.
• Vocational training


  Training that teaches you the skills you need to do a particular job
• Telecommunications and the internet have been used by businesses to help increase productive potential
• New technology is usually faster and more reliable in production and therefore output can be increased
• Improved efficiency


  • Over time, resources are used more efficiently
  • New production methods, such as kaizen (continuous improvement) and lean production (using fewer resources in production), have been developed and adopted
  • These more efficient methods replace the old ones and more output can be produced with fewer resources
• Education and training


  • An economy can boost the productive potential of a nation by educating and training the population
  • A country's economy becomes more productive as the proportion of educated workers increases
  • Educated workers can more efficiently carry out tasks that require reading and writing analysis, evaluation, communication and critical thinking
  • A country has to find the 'right' balance between academic and vocational education
• New resources


  • Some countries find new resources that enable them to produce more
  • For example, the USA has raised its productive potential by producing more oil through fracking
  • Fracking now provides the USA with around 50 per cent of its oil needs, up from just 2 per cent in 2000
• If countries can produce more, the PPC will 


  shift outwards
• It is possible for the PPC to shift inwards, representing negative economic growth
• Causes of negative economic growth

  • Resource depletion
  • Weather patterns
  • Large numbers of highly qualified, skilled and experienced workers moving overseas
  • Wars, conflict and natural disasters
• Production possibility curve (PPC)


  A curve that shows the maximum possible combinations of two goods that an economy can produce given the available resources and technology
• Economists are required to make some assumptions about the behaviour of individuals
• Rational


  (in economics) making a thoughtful and logical decision when choosing between different courses of action
• Economists assume that individuals behave in a rational way
• Consumers aim to maximise benefit


  Consumers will always choose a course of action that gives them the greatest satisfaction
• Examples of consumer rationality

  • Buying the cheapest product of the same quality
  • Buying the best quality product at the same price
• Businesses aim to maximise their profit


  Business owners will always choose a course of action that has the best financial results
• Examples of business rationality

  • Buying the cheapest raw materials of the same quality
  • Charging the highest possible price that the market can stand