Unit 1 Revision Notes
Economics
How The Market Works
THE ECONOMIC PROBLEM
WHAT IS THE PROBLEM?
Needs, Wants and Resources
Needs
Something essential to survival
Wants
Something you would like to have
Resources
Something used to produce output
FACTORS OF PRODUCTION
Can’t produce enough goods and services to satisfy everyone’s wants and needs
Economic resources are scarce, human wants are infinite
Factors of Production
Factor
Definition
Examples
Land
Includes both land itself and all natural resources. Naturally occurring resources available to use.
Coal, oil, metal, salt, wood, water
Labour
Human input. Work force of economy.
Human Capital (skills, qualification, talent)
Teachers, soldiers, cleaners, doctors, workers
Capital
Goods made to produce other goods.
Man made aids of production.
Machinery, computers, equipment, lorries
Enterprise
Risk taken, idea suggested, the drive.
Uses other factors.
Bill Gates, Theo Pathetis, JK Rowling
Primary, Secondary and Tertiary Sectors of Economy
Sector
Definition
Examples
Tangibility
Primary
Where the extraction of raw materials takes place
Mining, farming, fishing, quarrying
Tangible
Secondary
Where raw materials are manufactured into goods
Car manufacture, manufacture of electric goods
Tangible
Tertiary
The service sector
Banking, tourism, education, entertainment
Intangible
Opportunity Cost
What must be given up when a good/service is purchased.
(The sacrifice of the next most desired alternative)
Any good/service which has an opportunity cost is called an economic good
The resources used to make it could have been used to make something else
FREE GOODS: Air, water (sea/rain), sunshine not limited in supply
Economic goods can be sub-divided into categories:
Category
Definition
Examples
Consumer goods
Products bought to satisfy consumer wants/needs
Food, phone
Services
Provide non-physical benefits to consumers
Education, holiday
Capital goods
Goods used to produce consumer goods and services
When a business purchases a
How The Market Works
THE ECONOMIC PROBLEM
WHAT IS THE PROBLEM?
Needs, Wants and Resources
Needs
Something essential to survival
Wants
Something you would like to have
Resources
Something used to produce output
FACTORS OF PRODUCTION
Can’t produce enough goods and services to satisfy everyone’s wants and needs
Economic resources are scarce, human wants are infinite
Factors of Production
Factor
Definition
Examples
Land
Includes both land itself and all natural resources. Naturally occurring resources available to use.
Coal, oil, metal, salt, wood, water
Labour
Human input. Work force of economy.
Human Capital (skills, qualification, talent)
Teachers, soldiers, cleaners, doctors, workers
Capital
Goods made to produce other goods.
Man made aids of production.
Machinery, computers, equipment, lorries
Enterprise
Risk taken, idea suggested, the drive.
Uses other factors.
Bill Gates, Theo Pathetis, JK Rowling
Primary, Secondary and Tertiary Sectors of Economy
Sector
Definition
Examples
Tangibility
Primary
Where the extraction of raw materials takes place
Mining, farming, fishing, quarrying
Tangible
Secondary
Where raw materials are manufactured into goods
Car manufacture, manufacture of electric goods
Tangible
Tertiary
The service sector
Banking, tourism, education, entertainment
Intangible
Opportunity Cost
What must be given up when a good/service is purchased.
(The sacrifice of the next most desired alternative)
Any good/service which has an opportunity cost is called an economic good
The resources used to make it could have been used to make something else
FREE GOODS: Air, water (sea/rain), sunshine not limited in supply
Economic goods can be sub-divided into categories:
Category
Definition
Examples
Consumer goods
Products bought to satisfy consumer wants/needs
Food, phone
Services
Provide non-physical benefits to consumers
Education, holiday
Capital goods
Goods used to produce consumer goods and services
When a business purchases a