Unit 1 - Basics of Economics

The basic economic problem

Finite resources and unlimited wants

factors of production

1. Land
2. Capital
3. Entreprise
4. Labour

Land

Natural resources

Capital

Man - made resources

Entreprise

having an idea to bring the other factors of production together to make a profit

Labour

Human skills and effort

Production

Goods and services required to meet consumers needs
Organised by entrepreneurs in firms

Factor mobility

Occupational mobility → resource is able to change task (e.g. labourer goes from electrician to electrical engineer)

Geographic mobility → resource is able to move from 1 location to another (e.g. robot moved from India to China)

Economic goods

goods which are scarce in supply → only produced with an opportunity cost

Free goods

a good that is not scarce → available without limit

Firms

Includes all factors of production

Consumer goods

finished products that buyers buy for their use

Opportunity cost

The next best alternative sacrificed when an economic decisions is made → the choice that was given up

Production Possibility Curve (PPC)

show the maximum combined output of two or more products a firm (or an entire economy) can produce with available resources.

Why a PPC would move

shift to the right → increase resources

shift to the left → resources decreases

Why is a PPC useful?

Useful way of showing the opportunity cost of producing more of one product in terms of how much of another must be given up.