The Nature and Purpose of Economic Activity

• The purpose of economic activity is to produce goods and services which satisfy consumer needs and wants.
• What are the three questions which must be considered when producing a good or service?

  What is to be produced; How should it be produced; Who will benefit from the goods and services produced.
• 1 What is to be produced?

  This is a decision made by the government and the private sector. They must make their decisions carefully due to the problem of opportunity cost.
• 2 How should it be produced?

  This concerns how the goods and services produced will be distributed. Firms aim to minimise cost and maximise profit, so efficient production is needed. For example, whether to choose labour intensive production or capital intensive production; this can be decided by looking at how much each factor of production costs.
• 3 Who will benefit from the goods and services produced?

  Those (consumers) who are willing and able to pay the price charged for a good or service will get the goods and services. This is known as 'puchasing power'.
• What is economics?

  The purpose of economic activity is to create outputs to satisfy people's needs and wants and improve their welfare.  The problem we have is that human beings want everything but the planet has a limited amount of resources available.  We learn Economics because we are trying to find the most efficient way to satisfy our infinite needs and wants using the scarce resources on our planet.