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As Level Eco Notes, Chapter 1

The basic economic problem arises from the scarcity of resources in relation to unlimited human wants, leading to challenges in production, distribution, and consumption. Key issues include the scarcity of factors of production (land, labor, capital, and enterprise), opportunity costs, and choices regarding resource allocation. Economic goods are defined as scarce items that incur costs and are consumed at a price, with production possibility curves illustrating the trade-offs in output combinations.

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Rhianna Nambiar
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2 views3 pages

As Level Eco Notes, Chapter 1

The basic economic problem arises from the scarcity of resources in relation to unlimited human wants, leading to challenges in production, distribution, and consumption. Key issues include the scarcity of factors of production (land, labor, capital, and enterprise), opportunity costs, and choices regarding resource allocation. Economic goods are defined as scarce items that incur costs and are consumed at a price, with production possibility curves illustrating the trade-offs in output combinations.

Uploaded by

Rhianna Nambiar
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© © All Rights Reserved
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The Basic Economic Problem

-​ Economics is a social science that describes the factors that determine the
production, distribution and consumption of goods and services
-​ An economy is an area in which people make or produce goods and services from
scarce resources for consumption
-​ Consumption is the using up of goods and services to satisfy human needs and
wants
-​ Resources are the inputs required for the production of goods and services
-​ Any activity that fails to satisfy a human need or want is not productive
-​ Therefore, a consumer good is any economic good that satisfies an immediate
consumer need or want
-​ Scarcity is a lack of resources
-​ The basic economic problem stems from finite resources and unlimited wants.
There is a scarcity of resources to satisfy all human wants and needs
-​ Problem 1 - scarcity of factors of production
-​ Land - natural resources
-​ The reward for land is rent
-​ Supply of land is fixed
-​ Quality of land depends on soil type, fertility, weather, etc
-​ Land is geographically immobile as it cannot be moved, but it is
occupationally mobile since it can be used for various economic
activities
-​ Labour - physical and mental human effort
-​ The reward for labour is wage
-​ The supply of wages depends on the number of workers available
and the number of hours they work
-​ The number of workers available is influenced by population
size and structure, retirement age, attitude towards women
working, etc
-​ The number of hours they work is influenced by the number
of working hours per week, the length of maternity and
paternity leaves, the length of sick leaves and the number of
vacation days
-​ The quality of labour depends on the education and the skills of the
worker
-​ Mobility depends on many factors
-​ Occupational mobility(the ability to change jobs) depends on
the skills and education level of the worker
-​ Geographical mobility(the ability to move to a place for a
job) depends on transport costs, housing costs, family and
personal priorities and regional or national laws and
regulations on work and transport
-​ Capital - man-made goods that can be further used in production activity
-​ The reward for capital is interest from investments in capital goods
-​ Enterprise - the ability to organise production in a firm
-​ Profit is the reward for entrepreneurs
-​ Problem 2 - unlimited wants for goods and services
-​ Consumer’s desire to consume goods and services is never satisfied
-​ Problem 3 - opportunity cost
-​ Resources can be used individually or in combination with each other to
produce goods and services
-​ Problem 3 - choice of resource allocation
-​ What to produce?
-​ How to produce?
-​ For whom to produce?
-​ Problems at various levels
-​ Consumers - choice of goods and services they want to buy using limited
income
-​ Producers - choice of goods and services to be produced using alternate
factors of production
-​ Workers - choice of occupation
-​ Government - choice of short-term and long-term goals
-​ Goods are tangible items
-​ Economic goods are goods which are scarce in supply, they are produced
with an economic cost and are consumed at a price
-​ Everything that is bought is an economic good
-​ Production possibility curves - PPC
-​ It is an economic model that shows the maximum possible output
combinations of 2 goods or services that a firm can produce with a given
set of inputs consisting of natural resources and other factors of production
-​ It shows the opportunity costs faced by the firm when choosing between
different allocations of its resources
-​ The PPC of an entire economy can shift
-​ Inward shift - economic decline
-​ Outward shift - economic growth

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