introduction to economics

What is the economics problem?

The fact that resources are scarce but wants are infinite, therefore consumers, producers and the government have to make choices on how to allocate scarce resources.

Opportunity costs

Highest valued alternative that we forego because scarce resources are allocated elsewhere.

3 economic groups

Consumers, producers and the government

Consumers

Have limited income but infinite wants. They must decide how and why to spend their money.

Producers

Need to remain profitable so they must produce goods that are in demand + respond to changes in demands

Government

They have finite resources + power and they must decide how to allocate these in a way that will benefit everyone.

4 factors of production

Land, labour, capital and enterprise

What are factors of production

To produce goods + services requires resources, we call these the factor inputs available in the production process.

Land

• Natural resource available for production

• If a land is rich in natural resources, they’ll exploit them by specialising extraction and production of these resources.

Labour

Human input into the production process

Capital

• Everything else getting the produce from raw material to real product

• Infrastructure

• Investment in goods that can produce other goods in the future.

• Machines, roads, factories, schools + office blocks which humans have produced in order to produce other goods.

Enterprise

• Newly formed business launching new products + services

• Usually led by entrepreneurs.