Econ Chap1

• Economics is the study of the allocation of scarce resources
• The Basic Economic Problem is that people have an unlimited set of wants and needs but we have a limited amount of resources (factors of production)
• The purpose of economic activity is the production of goods and services to satisfy the ever-changing needs of society
• Need


  Any good or service that we require or that is necessary for our survival such as food and water
• Want


  Any good or service that is desired but is not necessary
• Examples of needs


  • Bread
  • Vaccinations
  • Clothing
• Examples of wants


  • Smartphone
  • Shoes
  • Car
  • Vacuum Cleaner
  • Branded clothes
• Key economic decisions


  1. What to produce?

  2. How to produce?

  3. Who is to benefit?
• What to produce?


  Which of the many goods and services that are wanted and needed should be produced
• How to produce?


  What methods are we going to use to produce our goods and services
• Who is to benefit?


  How do we distribute the things that we have produced so that people can access them and use them
• Main economic groups


  • Consumers
  • Producers
  • Government
• Consumers


  Those who demand the goods and services
• Being a consumer does not always mean that you have to pay
• Producers


  Those who supply the goods and services
• In the UK, most producers are private businesses but some organisations are provided by the Government
• Government


  The organisation who decides who should benefit and how to distribute the goods and services produced
• In the UK, the government is controlled by 'elected representatives'
• Most government activity is conducted by employed individuals
• There is a limited amount of space that has become available in the local town centre
• Common dilemma: whether to build a new factory or a new hospital in the available space
• Sometimes, we have to rely on the government to make decisions on our behalf
• Hopefully, the government has the best information available to make decisions
• Factors of Production


  • Land
  • Labour
  • Capital
  • Enterprise
• Land


  Includes all natural physical resources, e.g. fertile farmland, benefits from a temperate climate, harnessing of wind power and solar power
• Reward for land

  Rent
• Labour


  The human input into production, e.g. the supply of workers available and their productivity
• Reward for labour


  Wages
• Capital


  Capital goods are used to produce other consumer goods and services in the future
• Reward for capital


  Interest
• Enterprise


  An individual who supplies products or services; regarded by some as a specialised form of labour input
• Reward for enterprise


  Profit made from running the business
• Opportunity cost is the cost of any possible alternative when making a choice
• If a product does not generate sufficient demand

  It will not be produced
• The price acts as a signal to consumers who will compare the value of one product and service to another
• When making choices, we consider the costs and benefits with both options
• One of the issues with having limited resources is that eventually we must make a choice between which product or service gets produced
• Opportunity cost


  The cost of any possible alternative when making a choice
• If a product does not generate sufficient demand


  It will not be produced
• The government will make some of the choices regarding production