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Unit 1- Scarcity
Scarcity is a situation where there are only a limited number of resources available
to produce and to provide services.
What are the four factors of production?
1. Land: - all the natural resources on the planet, e.g. rice, oil, cotton, forests.
2. Labour: - skilled and unskilled people.
3. Capital: - man-made aids used by labour in the production process. For example,
machinery, buildings, computers, roads.
4. Enterprise: - risk-taking by an individual or a group who combine the other factors of
production in search of profit.
Infinite wants are when someone has a desire to have more, this leads to scarcity.
What is the basic economic problem and the need for choice?
Because there are only limited resources, and yet there is infinite wants. The basic problem is
choosing how to allocate resources between competing uses. An individual or society must
choose what to produce, how to produce it, how much to produce and who for.
How does the economic problem face consumers, producers and the government?
Consumers: - consumers have to allocate labour and leisure. They have to decide
what to buy, where to buy it, how much to pay and if it's reliable.
Producers: - producers have to decide what to produce, what the price will be,
amount to produce to maximise profit, how much labour to employ, how much the
wages will be and how much capital they need.
Government: - they have to decide on taxation, who to tax, how much to tax. How
to distribute income. How much to spend on public services, schools, roads, media,
defence, health and aid.
Opportunity Cost: - After making a choice, the decision-maker faces an opportunity
cost. An opportunity cost is the next best alternative foregone. Choosing to
produce some goods with finite (limited) resources means other goods cannot be