Opportunity cost and the basic economic problem
Opportunity cost: the cost of any activity measured in terms of the value of the next best
alternative forgone (that is not chosen)
Production: the act of creating output, a good or service which has value contributes to
the utility of others
Producer: people who make and sell goods/services
Consumption: The final purchase of goods and services by individuals
Consumer: Individuals who purchase the good/services to satisfy their wants and needs
Consumption Expenditure : Spending of consumers
Exchange: A marketplace in which securities, commodities, derivatives and other financial
instruments are traded
Trade: An economic activity that involves multiple parties participating in the voluntary
negotiation and then the exchange of one’s goods and services for desired goods
and services that someone else possesses.
Entrepreneurs: individuals who, rather than working as an employee, runs a small business
and assumes all the risk and reward of a given business venture, idea, goods,
or service offered for sale.
Human resources: the company department charged with finding, screening, recruiting
and training job applicants, as well as administering employee-
benefit programs. Also known as Labor.
Natural resources: resources occurring in nature that can be used to create wealth
Also known as Land. Examples include, seas and rivers.
Factors of Production;
Definition : inputs that are used in the production of goods or services in the attempt to make an economic profit. The factors of production include land, labor, capital and entrepreneurship.
Land refers to the resources available including the seas nad rivers, forests and deserts all manner of minerals from the ground; chemicals from the air and earth’s crust.
Labor refers to the physical and mental effort produced by people to make goods/services. The size and ability of a economy’s labor force are very important in determining the quantity and quality of the goods/services produced. The greater the number of workers the better educated and skilled they are, the more an economy can produce.
Enterprise refers to the ability to run a production process, employ and organize resources in a firm (an organization that owns a factory or a number of factories and even shops, where goods/services are produced).
Capital refers to already-produced durable goods that are used in production of goods or services. It is not wanted for itself but for its ability to help in producing other goods. It is also known as man-made resources.
Division of labor/Specialization
Definition: A system whereby workers concentrate on performing a few tasks (instead of finishing the entire product by themselves) and then exchange their production for other goods/services
- More goods/services can be produced
When workers become specialists in the jobs they do, repetition of the same operation increases the skill and speed of the worker and as a result more is produced.
- Full use is made of everyone’s abilities
With the division of labor there is greater chance that people will be able to do those things at which they are best and which interest them the most.
- Time is saved
Time is wasted when a worker has to switch from one task to another. Time can also be saved when training people. It would take many years to train someone to be able to build a car, for example, but a person can be trained quickly to fulfill one operation in the production process.
- It allows the use of machinery
As labor is divided up into specialist tasks, it becomes worthwhile to use machinery which allows a further saving in time and effort. For example, cars are painted by machines instead of by hand. This, in turn, allows machinery to take over people’s jobs leaving many unemployed.
- Work may become boring
A worker who performs the same operation every day is likely to be unsatisfied/low morale. To combat this, many firms play music to their labor forces, or allow them to have a rest during part of each hour. Longer rest hours and annual holidays may also be introduced although this will shorten the working week.
- People become too dependent on each other
Specialisation and divisiol of labour means that people come to rely on others for the provision of goods/services. For example, people who produce food rely on the provision of tractors, fertilizers, etc.
- Workers may feel alienated
Workers may feel unimportant because they can no longer see the final result of their efforts. Some firms are trying to reverse this by introducing workers to a greater variety of tasks
- Standardization of goods
Goods produced under a system of specialization are usually turned out in vast numbers and share the same design. Whether this is a disadvantage depends on people’s opinion. For example, there is probably variation in the color and design in clothes to please most people. However, it is not possible to please everyone because in most factories it would be difficult and expensive to change the production process to suit one person’s wants since most factories practice mass production in order to produce the greatest number of goods in the lowest cost possible.
What is economics?
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. It studies how individuals, governments, firms and nations make choices on allocating scarce resources to satisfy their unlimited wants. Economics can generally be broken down into: macroeconomics, which concentrates on the behavior of the aggregate economy; and microeconomics, which focuses on individual consumers.