Econ Notes

The Basic Economic Problem
Finite Resources
There is a limited quantity of resources which means resources are scarce.

Four factors of production : Land, Labour, Capital, Enterprise

The basic requirements for human survival
e.g water, food, warmth, shelter, clothing

Something that is desired
e.g more holidays abroad, a better house, a better car, a better education, etc

Wants are unlimited
Resources are limited

What is the basic economic problem?
World’s resources are scarce (limited) and people’s wants are infinite

Infinite Wants > Finite or scarce resources
Demand > Supply

What to Produce?
How to produce?
For whom to produce?

Opportunity Cost
The cost of choosing one thing and not the other.
Measures the benefit from the next best alternative you could have gone without.

PPC (Production Possibility Curve)
Shows the different combinations of goods and services that can be produced in a country if it is using all of its resources

Points ON the PPC shows that resources are being used most efficiently
Points outside the PPC is not attainable (possible) with the current level of resources the country has

PPC’s shift outwards = Growth in an economy

Types of economy

A market or free enterprise economy
It relies least on the public sector for goods and services because most of it is provided by private sectors.

Market forces determine allocation of resources

Public sector provides a legal system, a monetary system, key state services – competition exists between businesses

Phillipines, USA, Hong Kong, Australia, Singapore

A command or planned economy
It relies entirely on the public sector to choose, produce and distribute goods.

All resources belong to government

Goods are distributed from outlets – sold to consumers at prices set by the state

Cuba, North Korea

A mixed economy
It relies both the public sector and the private sector to provide goods and services

Consumer goods are best provided by private sector.