The economic problem is the allocation of scarce resources for unlimited wants and needs.
The factors of production are
- Land - natural resources in an economy
- Labour - the quantity and quality of human resources
- Capital - man made aids to production
- Enterprise - the willingness of entrepreneurs to take risks and organize production.
Specialisation is the concentration by workers and firms on a narrow range of goods and services, an advantage of this is an increase in the output of goods and services. A wider range of goods and services are available in an economy, also trade between developed and developing countries. Disadvantages are if for example the country specialises in non renewable resources like oil, when they run out the economy is likely to suffer. Unless they made good investments with the revenues earned for the exports. Bad weather is also a disadvantage, tastes or needs of consumers may change.
The market provide a means for where buyers and sellers meet to trade or exchange products. This provides a resolution of the basic economic problem by providing a means through which scarce resources are allocated.
Opportunity cost is the choice of the next best alternative which is foregone once a choice is made. PPC can also be used to show the difficult choices that have to be made by many developing economies.
Scarcity a situation where there are insufficient resources to meet all wants.
Consumer surplus - is the extra amount consumers are willing to pay above the price that is actually paid.
Demand is the quantity of goods and services that a consumer is willing to purchase at any given price and time.
The factors that influence demand. PASIFIC , price, advertisement, substitutes, income, fashion, indirect taxes, complements.
Producer surplus is the difference between the price a producer is willing to accept and what is actually paid.
Supply is the quantity of a product that producers are willing and able to provide at any given price and time.
The factors that influence supply. PINTS WC , productivity, indirect tax, number of firms, technology, subsides, weather, competition.
Cross elasticity of demand is the responsiveness of demand for one product in relation to a change in the price of another product. C E D equals change in quantity demanded of product A divided by change in price of product B.