The Nature of Economics
the economic problem- wants, resources, scarcity
* Needs are goods and services essential for survival.
* Wants are goods and services that aren’t essential for survival but make our lives easier. * Individual ants are desires of each individual person and depend on preference. * Collective wants are reflected on choices of the community. * Concurrent are wants that are satisfied over and over again. * Complementary are wants that naturally follow the initial satisfaction of another want. * Factors that effects wants changing overtime include age, income, technology and fashion.
* Resources are used in the production process to produce goods and services. * The four factors of production are:
* Land: natural resources create rent.
* Labour: human effort in production and creates wages.
* Capital: refers to goods that are used to produce more goods and services in the future and creates interest. * Enterprise: ability of entrepreneurs to take risks in organising other factors of production and creates profits.
* Scarcity of resources is an economic problem.
* Choices need to be made on how resources will be used n production. * What to produce: due to limitation of resources, does not satisfy all individual and collective wants. Must decide which to satisfy first, decision has to be made. * How much to produce: Allocate limited resources efficiently and maximise satisfaction of wants. If too many goods are made, resources will be wasted and producing too little will leave individuals unsatisfied. * How to produce: how to allocate its resources in the production process. Most efficient method of production that uses the least amount of an economies resource so the greatest numbers of wants are satisfied. * How to distribute production: people with higher incomes can afford more than people on lower incomes and therefore receive a bigger share of total production. Must decide a more equitable (even) or a more inequitable (uneven) distribution. The need for choice by individuals and society
- Opportunity is the cost of the alternative want is foregone. * Society that places a higher value on current living standards and production of consumer goods might allocate more resources on food, clothing, cars and loss on production on capital goods such as factories, shops and offices. Opportunity cost and its application through production- possibility frontier - Production possibility frontier refers to the maximum use of resources. * Demonstrates how opportunity costs arise when individuals or community make choices.
Future implication of current choices by individuals, businesses and governments - Main objective of engaging in economic activity is maximizing the returns from using resources that are available (allocative efficiency). Resources are allocated according to preferences of consumers and society for certain goods and services. * Consumers: choices made by consumers are the opportunity cost of buying essential goods and services and foregoing luxuries. * Businesses: opportunity cost of producing some goods and services and not others with same resource. May distribute profit to satisfy wants or retain business in order to invest in capital goods. * Governments: receive revenue from taxation and spend money on community infrastructure. If government spends more that they receive it is called budget deficit and in present, may face higher debt and low spending levels in the future. * Budget slurpus: extra money
Economic factors under-lying decision making
* Spending and saving: as income increases, consumers increase consumption. * INCOME (Y)= CONSUMPTION OF GOODS (C) + SAVINGS (S)
* Work: higher level of skills the higher the income earned. * Education:...
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