The Economic Problem

The Nature and Purpose of Economic Activity

• An economy and the central purpose of economic activity is to produce good and services to provide what we need and want.
• If we could organise a system that would meet wants and needs more efficiently and effectively then we would see overall evonomic welfare for the citizens increase.

The 3 Key Questions

• What should we produce?
• How should we produce it?
• For whom should it be produced?

The fundamental Economic Problem

• Wants are infinite whereas resources to provide the wants are finite. 
• This means that resources are scarce.
• Therefore choices must be made in order to benefit the economy the most with the limited resources.
• Each choice has a cost: the next best alternative forgone; the opportunity cost.
• Economic goods are goods that are scarce and therefore have an opportunity cost.
• Free goods have no opportunity cost; eg. air.

The Economic Resources/Factors Of Production

• Land - Goods such as minerals, land itself and all the resources we take from the world like fish, forestry & air.
• Labour - The potential workforce; the people, their skillset/abilities and intelligence.
• Capital - The stock of goods used to make other goods and services. For example; machines, tools, computers etc.
• Enterprise - The risk takes who are prepared to work to bring…