1.1: The Economic Problem

• Economic goods 


  Have a degree of scarcity. Consumption has an opportunity cost. People are willing to pay for them
• Free goods


  Are abundant. Consumption does not have an opportunity cost. People may not be willing to pay for them
• Basic Economic Problem


  Limited economic resources needed to meet unlimited human wants. Choices must be made on how to allocate resources
• Normative Statement


  Statement of ‘what should be’ that is based on opinion and cannot be tested
• Positive statement


  Statement of ‘what is’ that is based on theory and can be tested
• Land


  Natural resources used to produce goods and services
• Labour


  Human input into production
• Capital


  Goods which have been made in order to produce other goods
• Enterprise


  The special human resource
• Reward for land


  Rent
• Reward for labour


  Wages
• Reward for capital


  Interest
• Reward for enterprise


  Profit