4.1.1.2 The Nature and Purpose of Economic Activity

What is the central purpose of economic activity?

The central purpose of economic activity is to produce goods and services which satisfy consumer needs and wants.

What does producing goods and services require?

Producing goods and services requires using resources (inputs in the form of the factors of production) to produce outputs (goods and services)

What is the key economic decision?

The key economic decision is how to use scarce resources

What are the key economic decisions?

The key economic decisions is what to produce?, how should it be produced?, and who will benefit from the goods and services produced? These decisions determine the allocation of resources in an economy.

Explain “What to produce?”

Producers focus on goods and services that have a high demand. They prioritise consumer preferences to maximise satisfaction.

Explain "How should it be produced?"

Production needs to be efficient as firms need to minimise costs and maximise profits. This involves deciding on production techniques and the allocation of resources to achieve optimal output while maintaining quality.

Explain "Who will benefit from the goods and services produced?"

Consumers who have purchasing power will benefit from the goods and services produced.

What is purchasing power parity?

Purchasing power parity refers to the amount of goods and services that can be purchased with a specific amount of money.