Economics - The Basic Economic Problem

• Natural Resources

  • crops (wheat, barley, rice)
  • crude oil
  • gas
  • coal
  • water
  • wood
  • precious metals (copper, gold, silver, aluminium)
  • sand
• 4 Factors of Production

  • labour -> workers
  • land -> natural resources + live stall
  • capital -> machines
  • enterprise -> entrepreneurs, investors, ideas
• The Basic Economic Problem


  We do not have enough resources as they are finite to satisfy all the needs and unlimited wants of individuals (scarcity)
• Economic resources

  • they are finite
  • factors of production
  • inputs used to produce an output (goods and services)
• Scarcity


  recourses that are finite holding a high view
• Choice

  • producers have to choose what to produce
  • income is the factor that forces us to make choices
• Opportunity Cost


  The next best alternative option given up when making an economic decision
• Land


  All natural resources
• Labour


  regards quantity and quality (skill level, intelligence, qualifications and ability's) of the workforce
• Capital


  The stock of man-made goods used to make other goods and services
• Enterprise 


  Regard managers who organise/ allocate the other 3 factors of production. The entrepreneur/ owner is also considered the ‘risk taker’ within a firm
• What does the production possibility frontier show ?


  It shows the maximum potential output of an acronym if all resources are fully utilised
• Capital Good


  Any man-made good that helps in the production of other goods and services
• Consumer Good


  Sometimes called ‘finished goods’, these are bought by households to boost the utility (welfare) of the consumer
• Production Possibility Curve


  A diagram that shows the maximum possible output combinations of two goods in an economy, assuming full and efficient employment of recourses
• Factors causing an outward shift of the PPC

  • Technological improvements that lead to increased productivity of capital equipment
  • Discovery of new resources
  • Improvement in education and training that lead to a more productive workforce
  • Changes that lead to an increase in working population
• Value judgments


  Evaluative processes based on an individuals standards or priorities
• Positive statement


  One that can be tested
• Normative statement


  Bases on an opinion
• Need


  Something that humans require to survive
• Want


  Something not essential for survival but which people feel improves their standard of living, or economic welfare
• The Basic Economic Problem

  • what to produce and in what quantities?
  • how should goods and services be produced ?
  • to whom should goods and services be allocated ?
• Economic Welfare


  the economic well-being of an individual, a group within society, or an economy
• Factors of Production


  inputs into the production process
• Finite Resource


  resource which is scarce and runs out as it is used -> non-renewable resource
• Economic Growth


  the increase in the potential level of real output the economy can produce overtime
• Full Employment


  when all who are willing and able to work are employed
• Unemployment


  when not all of those who are able and willing to work are employed