Unit 1 Summary - Basic Economic Problem
Basic Economic Problem:
The allocation of scarce resources between unlimited wants.
Economic Scarcity, Oppurtunity Cost, and Infinite Wants
Economic Scarcity: The lack of resources. Because of unlimited needs, people need to decide between what resources to use.
Opportunity cost is the value of the next best alternative forgone after deciding.
Infinite wants means that everybody cannot have everything they want.
Examples of Oppurtunity Cost-Based Situations:
You buy a cabbage instead of a broccoli. The broccoli is the opportunity cost. You use a plot of land for a motorway instead of a farmland. The farmland is the oppurtunity cost.
Different Types of Goods
Free Goods and Economic Goods: Free goods do not cost money (Example: The Sun), whereas economic goods do.
Public goods are the goods and services a government provides, which do not need to be paid for. For instance, street lighting provided by the government is a public good.
Merit goods: These are goods are provided by the government because it thinks that people ought to benefit from them, even if they cannot afford to buy them. The government can do this to benefit the economy. Examples of merit goods are health care and education.
The Four Factors of Production:
Satisfying our wants, factors of productsions are the imputs into a production process from which an output of goods and services emerges.
Land: Natural resources include the fertile soil vital to the growth of plants, minerals such as coal and oil, and animals used for their meat and skins. These are called land, which include the seas and rivers of the world, forests and deserts, gases from the air, etc.
Labour: Related to the production by people, who provide the physical and mental effort to make goods and services. For instance, people who work with their hands and use their brains to help make goods and services provide human resources, which is termed as labour.
Enterprise: The skill and risk taking ability of the person who brings together all the other factors of production together to produce goods and services. Usually the owner or founder of a business. Business know-how, or the ability to run a production process is known as enterprise.
Capital: Human-made goods (or means of production) which are used in the production of other goods. These include machinery, tools and buildings.
Production Possibility Curves/Frontiers
From looking above, there is an oppurtunity cost when using resources. This PPC shows the maximum combinations of goods and services that can be produced by an economy in a given time period with its limited resources. The government has to move along the curve. If all the resources are used for the school, then there will be no hospitals. Any point outside the curve is unttainable, unless there is economic growth or increase in GDP.
Specializtion, differing from self-sufficeincy, which involves a person or community producting all the things they need for themselves, is a…