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30 views2 pages

Document 1

Uploaded by

Larry Loh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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1. Free goods vs.

Scarce goods (“economic goods”)


Free Goods are naturally abundant and do not require scarce resources to produce. They are
available in sufficient quantities to satisfy all human wants without any opportunity cost. Examples
include air and sunlight. Scarce Goods (Economic Goods), on the other hand, are limited in supply
relative to demand and require the use of scarce resources to produce. Their production involves an
opportunity cost since producing more of one good means producing less of another. Most goods
we use daily, like food, clothing, and smartphones, are scarce goods.

2. Allocation of resources and the economic problem


The economic problem arises because resources (land, labor, capital, and entrepreneurship) are
scarce while human wants are unlimited. This creates the necessity for allocation of resources,
which is the process of deciding how to use scarce resources efficiently to meet the needs and
wants of society. The challenge is to determine what to produce, how to produce, and for whom to
produce.

3. Opportunities cost
Opportunity cost is the cost of the next best alternative foregone when making a decision. It
represents the benefits that could have been gained by choosing the alternative option. For
example, if a government spends money on military defense, the opportunity cost is what the same
money could have achieved if it had been spent on education, healthcare, or other public services.

4. Factors of Production
● Labor: The human effort, both physical and mental, used in the production process.
Workers receive wages as compensation for their labor.
● Capital: Includes all man-made resources used in the production process, such as
machinery, buildings, and tools. It does not include money (which is a financial asset) but
rather tools and equipment that aid in production.
● Entrepreneurship: The initiative to combine land, labor, and capital to create and market
new products and services. Entrepreneurs take on the risks of business and are key to
driving innovation and economic growth.
● Land: Encompasses all natural resources that are used to produce goods and services. This
includes not just land itself but also water, oil, raw materials, and other elements that are
found in nature and not created by human effort.
5. The basic economic problem (What? How? For Whom?)
This problem addresses the fundamental questions any economy faces due to scarcity of resources:
What to produce? Deciding which goods and services should be produced based on society’s
needs and wants.
How to produce? Determining the methods and technologies to be used in the production process.
This involves choosing between more labor-intensive or more capital-intensive production methods
based on efficiency, cost, and available resources.
For whom to produce? Deciding who gets the produced goods and services. This involves
considerations of equity and efficiency, influenced by the distribution of income and wealth within
the society.

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