Chapter 1 - The basic economic problem

Basic economic problem

scarcity of resources to make goods and services for the satisfaction of unlimited human wants

Resources

are factor inputs or factors of production with which we make goods and services. They are classified as land, labour, capital and enterprise.

Free goods

Resources that are not scarce. They are not produced from scarce resources. They are freely available from nature and do not command a price.

Economic goods

Goods that are produced with scarce resources, they are limited in supply and command a price.

economy

an area in which people make goods and services for the satisfaction of their wants.

production

Any activity designed to satisfy people's wants.

consumption

using up of goods and services to satisfy our wants.

exchange

the process of selling what is in surplus and buying what is required.

market

an area where buyers and sellers are in contact for the exchange of goods and services.

consumer goods

products and services that satisfy human wants directly

capital goods

goods that are used in producing other goods, rather than being bought by consumers.

public goods

goods which cannot be provided exclusively to those who pay for it.

merit goods

goods provided by the government because they think that people ought to have them, even if they cannot afford to buy.