eco

• Basic economic problem


  How best to allocate scarce resources in order to satisfy people's unlimited needs and wants
• Nature of the economic problem

  • Finite resources and unlimited wants
• In every country, resources are limited in supply and decisions have to be made by governments, firms (businesses) and individuals about how to allocate scarce resources to satisfy their unlimited needs and wants
• Economic agents


  Households (private individuals in society), firms that operate in the private sector of an economy, and the government (the public sector of an economy)
• Private sector


  Economic activity of private individuals and firms, with the main aim of earning profit for its owners
• Public sector


  Economic activity directly involving the government, such as the provision of state education and healthcare services, with the main aim of providing a service
• Three basic economic questions addressed by economic agents

  • What to produce?
  • How to produce it?
  • For whom to produce it?
• Goods


  Physical items that can be produced, bought and sold
• Services


  Non-physical items that can be provided by firms and paid for by customers
• Needs


  Goods and services that are essential for survival
• Wants


  Goods and services that are not necessary for survival but are demanded by economic agents to fulfil their desires
• Over 3 billion of the world's inhabitants live on less than $2.50 per day and more than 1.3 billion live in extreme poverty (less than $1.25 a day), suggesting their basic needs are not being met
• The ten richest people on the planet have wealth equivalent to the poorest half of the world's population
• Economic goods


  Goods which are limited in supply
• Free goods


  Goods which are unlimited in supply, such as air and seawater, with no opportunity cost in terms of their output
• Free goods are not the same as goods provided without having to pay, as the latter has an opportunity cost and is funded by taxpayers' money
• Factors of production


  The resources required to produce a good or service, namely land, labour, capital and enterprise
• Factors of production

  • Land
  • Labour
  • Capital
  • Enterprise
• Land


  • The natural resources required in the production process, such as oil, coal, water, wood, metal ores and agricultural products
• Labour


  • The human resources required in the production process, including skilled and unskilled labour
• Capital


  • The manufactured resources required in the production process, such as machinery, tools, equipment and vehicles
• Enterprise


  • The skills a business person requires to combine and manage the other three factors of production successfully
• The first letter of each of the four factors of production spells the word CELL. This is a useful way of remembering the four factors of production.
• Rent


  The reward for land
• Wages and salaries

  The reward for labour
• Interest


  The reward for capital
• Profit


  The reward for enterprise
• Income


  The collective rewards for the factors of production
• Geographical mobility


  The willingness and ability of a person to relocate from one area to another for employment purposes
• Occupational mobility

  The ease with which a person is able to change between jobs
• Generally, the more occupationally and geographically mobile workers are in a country, the greater its international competitiveness and economic growth are likely to be
• Higher labour costs caused by an increase in the national minimum wage

  Tend to reduce the demand for labour
• Government policies (taxes, subsidies, regulations)


  Affect the costs of production
• New technologies


  Allow firms to produce more output and cut average costs of production
• Net migration of labour


  Affects the quantity of labour in the economy
• Improvements in education and healthcare

  Improve the quality of labour
• Unfavourable weather conditions


  Reduce the supply of agricultural products
• Favourable weather conditions

  Increase the supply of agricultural products