basic economic problem

• Microeconomics


  The study of how to best solve the basic economic problem
• Basic economic problem


  How to allocate scarce resources given unlimited wants
• Factors of production


  • Capital
  • Enterprise
  • Land
  • Labor
• Capital


  Man-made aids to production
• Enterprise


  Risk-takers who innovate and produce goods and services to make profits
• Land


  Natural resources where goods can be produced or taken
• Labor


  Human resources that can produce goods and services
• The world does not provide an infinite amount of factors of production, they are scarce resources
• Fundamental choices in a market economy


  • What to produce
  • How to produce it
  • For whom to produce
• Opportunity cost


  The cost of the next best alternative foregone when a choice is made
• Opportunity cost is used to measure whether the choices made are good or bad
• If the value of the current choice is greater than the opportunity cost, it is a good decision. If the opportunity cost is greater, it is a bad decision.
• the law of demand states that as the price of a good increases, quantity demanded decreases