2 - the basic economic problem

need

essential to survival (eg. food, water)

want

not essential for survival (phone, makeup)

why do economists exist

• to allocate resources

• address problem of scarcity

scarcity

gap between unlimited wants & limited resources

basic economic problem

• insufficient resources to satisfy people

• can be due to population growth, bad management, or finite resources

how do we decide what to make?

• what to produce

• how it should be produced

• for whom should it be produced

• (or is there anything more imortant that should be produced first??)

factors of production: land

• natural resources

• e.g. coal, oil, wood

• reward: rent

factors of production: capital

• man made inputs into processes

• e.g. railway, machinery, vehicles

• reward: interest

factors of production: labour

• human input into production

• e.g. workers

• reward: wages

factors of production: enterprise

• organising factors of production to make profit, and taking risks

• e.g. elon musk

• reward: profits/dividends (which can be paid to shareholders, who invest in the company)

we must figure out how to get the ____ out of the FOPs

most

the _____ and _____ of FOPs are important

quality / quantity