Introduction to Micro - definitions

Wants vs Needs

wants are unlimited, according to economists. Needs are what are needed for basic human survival (eg food, shelter, clean water)

Scarcity

A situation that arises where people have unlimited wants, however the resources needed to meet these wants are finite.

Opportunity Cost

The value of the next best alternative forgone when a choice is made

the ‘economic problem’

how to best allocate scarce resources between alternative uses, to maximise economic welfare

Factors of production

resources used in the production process.

what are the factors of production?

• labour

• capital

• land

• entrepreneurship

Labour (human resources)

the quantity of workers and their skill and knowledge (factory workers knowledge, secretary’s time)

Capital (physical resources)

resources that are man made for production (roads, factories).

most factors of production are often capital

land (natural resources)

non-renewable and renewable natural sources (wind, solar, coal, oil)

entrepreneurship (entrepreneurial resources)

the organisation and risk-taking of a manager, who will bring resources together as a means of production.

four main sectors

• primary - the farming of raw materials and foods

• secondary - industrialising raw goods into manufactured goods

• tertiary - providing services and service-related industries

• quaternary - branch of the tertiary sector; added information technology, research and development

free goods

goods with no opportunity cost

economic goods

goods that have opportunity cost. therefore, there will be an element of scarcity