The basic economic problem

The basic economic problem

is concerned with how best to allocate scarce resources in order to satisfy people's unlimited needs and wants.

Economic Agents

are households (private individuals in society), firms that operate in the private sector of an economy and the government (the public sector of an economy).

Private Sector

refers to economic activity of private individuals and firms. The private sectors main aim is to earn profit for its owners

Public Sector

refers to economic activity directly involving the government, such as the provision of state education and healthcare services. The public sectors main aim is to provide a service

Goods

Physical items such as clothes or shoes

Services

Non physical items such as haircuts or bus journeys

Needs

are goods and services necessary for human survival

Wants

are goods and services not necessary for human survival but are demanded by economic agents to fulfill their desires

Economic Goods

goods that are scarce, for which the quantity demanded exceeds the quantity supplied at a zero price

Free Goods

Goods that are unlimited in supply and which therefore have no opportunity cost

factors of production

refers to the resources required to produce a good or service, namely land, labour , capital and enterprise

Geographical mobility

the ability and willingness of labour to relocate to another location or country for employment reasons.

Occupational mobility

The ability and willingness of employees to do another job or pursue a different career. Retraining and upskilling help workers to improve occupational mobility

opportuntiy cost

is the cost of the next best opportunity forgone when making a decision

Production Possibility Curve

represents the maximum combination of goods and services which can be produced in an economy i.e. production capacity of an economy

PPC diagram

graphical representation the maximum combination of goods and services which can be produced in an economy, per period of time