Economics Study Notes

The Nature of Economics

Economic Problem
The economic problem is about the need to make choices due to unlimited wants on the economy’s limited supply of goods and services due to scarce availability of resources. Due to scarce resources, individuals, businesses and governments must prioritise between wants leaving some wants unsatisfied in order to solve the economic problem.

Types of Wants
 Basic-
 Recurring
 Substitute- Can be used instead of another
 Luxury
 Complementary- Works with another good
 Individual- One person can use it
 Collective- Group of people can use it

What goods and services to be produced?
Consumer Sovereignty - Consumers determine through purchase power what is produced and how much is produced in a market economy.
Business – Businesses are motivated through profit and seek a point where revenue minus expenses is greatest.
Government- Australian government plays a major intervention as a consumer, employer, business and regulator. Governments can limit supplies of certain goods deemed inappropriate for society as well as create a demand for goods and services they consider society should have.

How much to produce?
Businesses must consider over-supply meaning a waste in scarce resources and using limited resources means less availability of resources and output in the future.
The government may decide to regulate the quantity supplied with either a quota, limit on production or number of suppliers.

How they will be produced?
Businesses will consider how these goods and services will be produced based on cost and production possibilities of the resource they will use. The government may regulate hours of work or zoning of land which could alter a businesses decision.

How to distribute goods?
The allocation of these goods and services in a market economy is based on income. The value of resources you contribute to the economy largely determined the income and in accordance with that, your share of