Scribd
Upload
33 views

Basic Economic Problem

The document discusses the basic economic problem of scarcity. It explains that resources are scarce in relation to human wants and needs, so choices must be made about how to allocate limited resources. All economic actors - consumers, producers, workers, and governments - face this problem of scarcity. It then provides examples of different types of goods and factors of production, and introduces key economic concepts like opportunity cost and production possibility curves.

Uploaded by

aribahamjad8129
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
33 views

Basic Economic Problem

The document discusses the basic economic problem of scarcity. It explains that resources are scarce in relation to human wants and needs, so choices must be made about how to allocate limited resources. All economic actors - consumers, producers, workers, and governments - face this problem of scarcity. It then provides examples of different types of goods and factors of production, and introduces key economic concepts like opportunity cost and production possibility curves.

Uploaded by

aribahamjad8129
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 3

UNIT 1: THE BASIC ECONOMIC PROBLEM

Economics is the study of scarcity and its implications for resource allocation in society.
The basic economic problem is that resources are scarce. There are finite resources available in
relation to the infinitive wants and needs that humans have.
Due to the problem of scarcity, choices have to be made by producers, consumers, workers and
governments about the most efficient use of these resources.

All stakeholders in an economy face the basic economic problem


Consumers Producers Workers Government
 In a free market,  Producers selling products  Workers may want a  Governments have to decide
scarcity has a direct made from scarce more comfortable if they will provide certain
influence on prices. resources will find their and safer working goods / services or if they
costs of production are environment but will allow private firms to
 The scarcer a resource higher than if they were their employers may them instead
or product, the higher products made from more not have the  Their decision influences
the price consumers abundant resources resources to provide the allocation of resources in
will pay it society.

 Economic goods are scarce in relation to the demand for them. This makes them valuable. Due to
their value, producers will attempt to supply them in order to make a profit. Anything that has a
price tag is known as an economic good. An economic good is a good with an opportunity cost.
Eg: bottled water and clothes

 Free goods are abundant in supply, due to this abundance, it is not possible to make a profit from
supplying free goods. Eg: sunlight, the air we breathe etc

 Public goods are goods and services provided by the government without any cost. Eg: law and
order, street lights

 Merit goods are those goods and services that are subsidised or provided free at the point of use.
Eg: education and healthcare


A consumer good is any good that satisfies consumer wants and they are end products which have
no future productive use. Eg: A watch
 Capital goods are man made resources to help produce other goods and services
FACTORS OF PRODUCTION

Factors of production are the resources used to produce goods and services (Land, Labour, Capital and
Enterprise).
The production of any good / service requires the use of a combination of all four factors of production.

Factor of Reward Mobility


production
Natural resources are available for production.
Some countries have a vast amount of a particular Geographically immobile
Land natural resource and so are able to specialise in its Rent Occupationally mobile
production.

The human input into the production process.


Some workers are more skilled and productive
than others due to a difference in education, Geographically & occupationally
Labour training and experience. Wages mobile

Capital Machinery and equipment used to produce output Depends on the nature and use of
Interest the capital

Enterprise involves taking risks when setting up a


firm. An entrepreneur decides on the combination
of the FoP necessary to produce output with the
Enterprise aim of making profit Profit Geographically & occupationally
mobile

Labour mobility
Labour is often one of the most expensive costs of production. If firms can substitute capital for labour,
productivity often increases and the cost of production will decrease. Many firms reply on labour and
ensuring labour mobility helps to lower unemployment and reduce worker shortages in an economy.

OPPORTUNITY COST
Opportunity cost is the next bet alternative that is sacrificed in order to satisfy the other.

PRODUCTION POSSIBILITY CURVE


A production possibility curve (PPC) is an economic diagram that considers the maximum output that a
country can generate if it uses all of its factors of production to produce only two goods/services.

1. The use of PPC to depict the maximum potential of an economy

The curve demonstrates the possible combinations of the


maximum output the economy can produce using all of
its resources (factors of production)
At A, its resources are used to produce only consumer
goods (300)
At B, its resources are used to produce only capital
goods (200)
Points C & D, both represent full (efficient) use of an
economy’s resources as these points fall on the curve.
At C, 150 capital goods and 120 consumer goods are produced.

2. The use of PPC to depict opportunity cost


To produce one more unit of capital goods, the economy must give up production of some units of
consumer goods (limited resources)
If the economy moves from point C (120,150) to D (225,100), the opportunity cost of producing an
additional 105 units of consumer goods is 50 capital goods. A
A movement in the PPC occurs when there is any change in the allocation of existing resources within an
economy such as the movement from C to D.

3. The use of PPC to depict efficiency, inefficiency, attainable and unattainable production
Producing at any point on the curve represents productive efficiency
Any point inside the curve represents inefficiency (point E)
Using the current of level of resources available, attainable production is any point on or inside the curve,
and any point outside the curve is unattainable (point F)

SHIFTS IN A PPC

Economic growth occurs when there is an increase in the


productive potential of an economy.

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy