1.1 - Main Economic Groups and Factors of Production

What are the main economic groups?

• Households/consumers: make up the population and workforce + consume goods/services

• Businesses/firms: produce goods/services (using factors of production) to make profits

• Government: gives public goods/services (with taxes) and creates policies to help society

• International sector: the rest of the world that interacts with the domestic economy

Factors of production: 

• Land: natural resources (fields, mines, etc.)

• Labor: workforce, employed laborers

• Capital: goods that help with production (machines, offices, tech)

• Enterprise: entrepreneurship, combines the other factors to make a good/service

The role of the factors:

• They combine together to form a good/service that will be used to generate profit

  • Enterprise involves making economic decisions (rent, wages, advertising, etc.) to sell the product and generate profit

  • Income adds on to the GDP (Gross Domestic Product)

• Impacts aspects of economy:

  • supply, demand, interest rate, debt, employment, etc.

1.2 - The Basic Economic Problem

What is the basic economic problem? → Our resources are scarce, but our wants are unlimited.

• We have finite resources which are:

  • the main factors of production– land, labor, capital, and enterprise

• We as humans constantly have needs and demands that outnumber how much can actually be supplied to us.

• This is the big idea of economics!

We have to make certain decisions to try and allocate resources as best as possible

• We must consider the three main questions of economics:

  • What to produce?

  • How to produce?

  • For whom to produce?

• to be efficient, the most important things are considered first, i.e. our needs.

• After fulfilling needs, we can consider wants.

• We may have to make trade-offs or face opportunity costs while making these decisions.

Opportunity Cost: the value of the next best alternative that we lose when making a decision

• Every decision we make causes a sacrifice– choosing one option means that the opportunity cost is whatever the value of the next best alternative was.

• Every choice involves sacrificing another option!

• E.g. If you choose to spend money on a new shirt, the opportunity cost is that you won’t have enough money for dinner that night.

Trade-off: making a choice means losing another option.

How do we make economic decisions?

• Economic decisions are made in all levels of society

• Consumers: spend to maximize our satisfaction and/or usefulness

• Businesses: spend to maximize profits and minimize costs

• Governments: spend to satisfy needs and wants of citizens + allocate resources

• In order to make decisions, we consider:

  • needs/wants, opportunity costs/trade-offs, resources/income, effects, and priorities

THINGS TO CONSIDER WHEN DECISION MAKING:

Needs/Wants: 

• Do we really need this item/service?

• Is it just a want that doesn’t need to be prioritized?

• Will buying this jeopardize my needs?

Opportunity costs/Trade-offs:

• Which choice is better?

• What is the cost of this decision?

Resources/income:

• How much money can you spend?

• Is this using up valuable resources?

Effects:

• Does this impact the environment?

• Does this hurt or help people?

• Does this have a positive or negative impact?

• Does this affect the economy?

Priorities:

• Is this a need or a want?

• Is this an urgent purchase?

• Have you thought about the purchase?