- Created by: haled.15
- Created on: 16-03-20 14:10
1.1.3 The Economic Problem
The four factors of production ( FoPs ) are:
Which can also be remembered using the acronym: (CELL)
Capital is the machinery or good used in the production process
Entrepreneurship is the willingness and ability to take risks with use of the other FoPs.
Land is the use of natural resources and where you locate such as physical space or coal.
Labour is the amount of workers/ employees in the business that are part of the production process.
For every Factor Of Production , there is a reward/payment:
If you were to rent out Capital (machinery) you would expect to recieve interest.
If you were to rent out Entrepreneurship you would expect to recieve profits.
If you were to rent out Land you would expect to recieve rent.
If you were to rent out labour you would expect to receive wages.
These Factors Of Production are inputs, and they produce outputs in the form of goods and services. This can be seen as a rough example of an economy.
The Basic Economic Problem is that there are unlimited wants and finite (limited) resources. Therefore we as an economy have to allocate resources carefully.
This also gives a rise to Oppurtinity Cost. An Oppurtnity Cost can be defined as the value of the next best alternative forgone. For example if you had £1 and you went to the shop, there are is an alternative to most goods, such as deciding between crisps or chocolate.
To talk about the economic problems you first have to know the difference between renewable and non-renewable resources:
A renewable resource is NOT limited/Unlimited, and can be replenished, examles include solar power, oxygen and even fish. As long as the rate of consumption of the resource is less than the rate of replenishment.
A non-renewable resource CANNOT be replenished and will eventually run out, examples include fossil fuels such as coal and natural gas.