LEARNING OUTCOME 1

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LEARNING OUTCOME 1

• THE BASIC ECONOMIC PROBLEM

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THE BASIC ECONOMIC PROBLEM

• RESOURCES ARE LIMITED
• land - natures contribution to production
• labour - human contribution to production
• capital - man-made contribution to production
• enterprise - the skill to combine resources for
  production
• WANTS ARE UNLIMITED
• result - SCARCITY! - therefore
• CHOICES MUST BE MADE

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OPPORTUNITY COST

• Resources have many uses.
• When you make a choice, what you do without is
  the opportunity cost of the choice you made.
• Production Possibility Curves show possible
  combinations of 2 products with a given set of
  resources.

• A - possible but inefficient
• B - preferred as there are no unused
  resources
• C - not possible with existing resources

Combinations inside and on the boundary are
possible. Combinations outside are not with the
resources available.
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• Different Economic Systems

A Planned Economy
Examples Cuba and China
All decisions are made by the Central Government
Less choice of goods and services is available
and Shortages are common
Little or no incentive to work to the best of
your ability
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A Free Market Economy
Examples The USA and Japan
Resources are allocated through the price system
A wide variety of goods and services are available
Goods and services which are not profitable have
to be supplied by the government
Wide gap between rich and poor
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A Mixed Economy

• Has features of both planned and free market

Examples the UK and France
Has both a private sector and a public sector
Can be subject to economic fluctuations
The government monitors and regulates the
activities of private firms
There is a social security system for those who
need it, funded from tax revenues
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QUIZ
What is another name for resources?
Factors of Production
Name 4 resources
Land, Labour, Capital and Enterprise
In economics does scarce mean difficult to find?
No
What does scarcity mean in economics?
Limited in Supply
What is opportunity cost?
What has to be done without when making a choice
What does efficiency mean in economics?
Maximum output from least use of resources best
use of resources
How can resources be increased?
Land increased fertility, reclamation Labour
immigration Capital sound investment Enterprise
- education