The Nature and Purpose of Economic Activity
- PURPOSE - to produce goods and services to satisfy needs and wants establishing economic welfare.
- ECONOMIC WELFARE - the measure of happiness within an economy - economic welfare and activity are difficult to measure as some activity not recorded e.g. housework, black market.
- 3 MAIN QUESTIONS -
- WHAT to produce ?
- HOW to produce it ?
- For WHOM to produce it ?
- ECONOMIC PROBLEM :
- LIMITED RESOURCES to meet UNLIMITED WANTS
- 3 types of economy
- Market - the price mechanism performs task of allocating scarce resources among competing uses.
- Mixed - it contains both market and non-market sectors and a substantial public sector as well as a private sector, government may intervene.
- Command economy - government decides on the production of goods and services.
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FACTORS OF PRODUCTION - INPUTS INTO PRODUCTION PROCESS - CELL
- Capital - used to assist production of other goods. E.g machinery.
- Enterprise - e.g entrepeneur - the person who addresses issues such as what, for whom & how to produce. They decide how much land, labour and capital are needed. They are risk takers and decision makers motivated by profit.
- Land - all natural resources. e.g medows. Also includes minerals such as coal, gold, agricultural crops and livestock.
- Labour - Human effort both physical and mental, used in the production of goods and services. Do not confuse with enterprise a bank manager is not an entrepeneur because he is not risking his own capital.
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