The economic problem the nature and purpose of economic activity

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  • Created by: Caitlin
  • Created on: 27-03-13 21:20

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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Economic Resources

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.

Four of the production factors displayed in a diagram. These are: entrepreneur, land, labour and capital. (http://www.bbc.co.uk/bitesize/higher/business_management/images/production.png)

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