The Basic Economic Problem

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    The Basic Economic Problem

    • The resources available to an economy are known as the factors of production
    • Factors of production are the mean by which an economy produces a whole range of goods and services to meet the needs of its population
    • The four factors of production are:
      • Land – Natural resources.
        • g. oil, rivers, minerals. Also can be attractive touristic things like the sun, sea, sand, etc.
      • Labour – The human resource in an economy.
        • Quantity and quality of an economy’s labour are important factors
      • Capital – A form of physical resource that covers anything that’s regarded as a man-made aid for production.
        • Capital is combined with land and labour to produce goods that are required by the population.
        • g. factories, offices, machinery, IT, transport, roads, electricity, etc.
      • Entrepreneurship – A particular form of human capital.
        • Firstly, it refers to enterprise whereby the other factors of production are organized to produce goods and services
        • It also refers to entrepreneurs and people willing to take risks

    • The quality of an economy is based on factor endowments – Poor factor endowments, poor economy
    • Factor endowment alone isn’t the only ‘factor’ the determines the quality of an economy

     

    • The factors of production are scarce, but consumers’ wants are unlimited
    • We all want things, whether it be food and shelter or a new TV
    • Wants are different and are of greater or less priority for everyone – scale of preferences
    • This means that we have to choose what we want based on what’s available – due to scarcity (we can’t have it all!)
    • When making choices, economists consider possible alternatives – opportunity cost

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