econs: #1-3

basic economic problem, fop, opportunity cost

basic economic problem

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

economic agents

households (private individuals), firms (private sector), government (public sector)

3 basic economic questions

1. what to produce

2. how to produce it?

3. for whom to produce it?

economic goods

requires payment, opportunity cost, limited supply

free goods

doesn’t require payment, no opportunity cost, unlimited supply

factors of production

resources required to produce a good/service, namely capital, enterprise, land, and labour

capital

the manufactured resources required in the production process, such as machinery, tools, equipment, and motor vehicles, its reward is interest

enterprise

the skills a businessperson requires to combine and manage successfully the other 3 factors of production, its reward is profit

land

the natural resources/raw materials required in the production process, such as oil, coal, water, wood, metal ores, and agricultural products, its reward is rent

labour

the human resources required in the production process, including skilled and unskilled labour, its reward is wages and salaries

costs of fop

quantity, higher factor costs reduce quantity demanded of fop as firms cut costs

government policies

quantity, policies like taxes/laws/subsidies increase/decrease factor supply/demand

costs of production

quantity, higher costs reduce output, so fewer factors are needed

new technology

quality, improves efficiency, increasing quality of labour/capital

net migration of labour

quantity, more workers increase labour supply and quantity

education/training/healthcare

quality, improves skills and productivity, increasing quality of labour

unfavourable weather

quality, reduces productivity of land, lowering its quality

opportunity cost

the value of the next best alternative that has been forgone in a decision-making process