The basic economic problem:
scarcity and exercise of choice .
igcse economics - Scarce resources & unlimited wants
This is the reason for the existence of this subject. In reality most resources are scarce. Similarly individuals and nations have unlimited wants. [pic]
There are only a limited number of resources such as workers, machines, factories, raw materials etc. Yet there are a number of different ways in which they could be used. [pic]
Similarly people only have a limited amount of money. Yet they have lots of needs and wants to satisfy. [pic]
Also the Government has a limited amount of money £440 billion !!!!. However, it is unable to satisfy all its wants. [pic]
THE BASIC ECONOMIC PROBLEM – the problem arises because resources are scarce, but human wants are unlimited.
What is the difference between needs and wants?
choice and opportunity cost
Economic choice - is deciding between different uses of scarce resources Opportunity cost - is the benefit that is lost in making a choice between two competing uses of scarce resources. It is the next best alternative. [pic]
Examples of Opportunity Cost
Allocation of Resources
This is about how resources are allocated between competing uses Examples
• Coca Cola decide to spend £50 billion on advertising • The government decides to spend £100 billion on hospitals • An individual allocates their time to study rather than playing football
igcse economics - factors of production
Factors of production are the resources of LAND, LABOUR, CAPITAL and ENTERPRISE used to produce goods and services.
Land is the natural resources on the planet. It includes space on the ground, hills, seas, oceans, air etc LABOUR
Labour is the human input (workers, managers etc) into the production process. The UK has about 58 million people of which approximately 35 million are of working age. Each individual has a different level of skills, qualities and qualifications. This is known as there HUMAN CAPITAL. CAPITAL
Man made physical goods used to produce other goods and services. Examples include machines, computers, tools, factories, roads etc. Increases in the level of capital are called INVESTMENT
The entrepreneur provides the initial ideas.
They risk their own resources in business ventures. They also organise the other 3 factors of production. igcse economics - types of production
The factors of production are combined to make goods and services. Choices have to be made over what to produce and how to produce. The value of total production in an economy is known as TOTAL OUTPUT.
Types of Industry
(1) PRIMARY INDUSTRY
Industry that extracts raw materials from the earth, such as coal, fish and wheat. Raw materials are mined, collected, grown or cut down. Examples coal mining, agriculture, oil extraction
(2) SECONDARY INDUSTRY
Industry that processes primary products into manufactured goods. Examples car production, making tables
(3) TERTIARY INDUSTRY
Businesses that provide a service, either to individuals or to other businesses Examples hairdressing, banking or solicitors
This refers to the change in the balance of the economy between the output of different types of industry. In the UK and other advanced economies there is NOW LESS PRIMARY INDUSTRY and MORE TERTIARY INDUSTRY The UK has experienced the loss or decline of a number of established industries e.g. shipbuilding, mining These have been replaced by a growth in the service sector e.g. leisure facilities, retail. People generally have more TIME and DISPOSABLE INCOME to spend on these options.
igcse economics -specialisation and the division of labour
The DIVISION OF LABOUR is a system whereby workers concentrate on performing a few tasks and then exchange their production for other goods and services. This is an example of specialisation.