The reasons for individuals, organisations and societies having to make choices

  • Describe what economists mean by "the economic problem"
  • Understand the different factors of production as economic resources
  • Explain how specialisation can be used to address the problem of scarcity
  • Understand the role of markets in allocating scarce resources
  • explain what is meant by opportunity cost 
  • explain how production possibility curves can be used to show scarcity, choice and opportunity cost
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The Economic Problem (1)

  • Economics 
  • The economic problem
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The economic problem (1)

  • Economics is the study of how to allocate scarce resources in the most effective way.
  • The Economic problem is how to allocate scarce resources among alternative uses. 

It is important for economists to know what the economic problem is in order to then allocate resources properly and efficiency to satisfy the unlimited wants of the consumer. 

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Factors of production (2)

  • Factors of production
  • Goods
  • Services
  • Land
  • Labour
  • Capital
  • Entrepreneurship
  • Entrepreneur
  • Want 
  • Scarcity
  • Choice
  • Opportunity Cost
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Factors of production (2)

  • Factors of production are the resource inputs that are available in an economy for the production of goods and services.
  • Goods are tangible products, i.e. products that can be seen and touched, such as cars, food and washing machines.
  • Services are intangible products, i.e. products that cannot be seen or touched, such as banking, beauty therapy and insurance. 
  • Land is a natural resource in an economy. 
  • Labour is the quantity and quality of human resources.
  • Capital is man-made aids to production.
  • Entrepreneurship is the willingness of an entrepenuer to take risks and organise production.
  • An Entreprenuer is someone who bears risks of the business and who organises production.
  • A Want is anything you would like, irrespective of whether you have the resources to purchase it.
  • Scarcity is a situation where there are insufficient resources to meet all wants. 
  • Choice is the selection of appropriate alternatives.
  • Opportunity Cost is the cost of the (next) best alternative, which is foregone when a choice is made. 
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