The Basic Economic Problem;
Infinite Wants Vs. Finite resources
- Because people always want more money so they can buy more goods and services it means
we have unlimited wants
- However at any one point in time the world can only produce a limited amount of goods and
services meaning resources are scarce
- Although the Country’s production potential increases over time so do wants as people
desire a higher and higher standard of living
- Goods that are scarce are called economic goods
- Free Goods do not require resources to produce them as they occur naturally however as
the population expands free goods decrease
- The Basic Economic Problem creates 3 main problems; What is to be produced in what
quantities? How to produce it? (labour intensive vs. capital intensive etc. need to attempt to
maximise output from the allocated resources) and who to produce things for? (need to
decide how the nations income is to be distributed and whether everyone should have an
equal share
Opportunity Costs;
- “The benefits that have been lost/forgone from not taking the net best alternative”
- Every choice involves a range of alternatives which can be graded in terms of benefits gained
- When someone makes a choice all other options have to be sacrificed
- Because resources are limited but wants aren’t we have to make a choice of which wants to
satisfy
- Free Goods have no opportunity cost
Factors of Production;
- Land; Doesn’t only include the physical space but all the natural resources below the earth,
on the surface and in the atmosphere. Includes non-renewable resources such as coal and
oil as well as renewable resources that can be used and replaced if they are not over
exploited. Land is occupationally mobile as it can be switched from one use to another
- Labour; The workforce available to an economy at any point in time. Each worker has a
unique set of inherent characteristics. The value of a single worker is known as their human
capital and can be increased with education or training
- Capital; The stock of machines, tools, factories and other resources used in the production
of goods and services. Working or circulating capital is the stock of raw materials, semi-
finished goods and finished goods waiting to be sold by firm. Fixed Capital is the stock of
factories, offices, tools etc. that is only used in the manufacturing process and isn’t turned
into a final product.
- Enterprise; Comes from individuals known as entrepreneurs who organise the other 3
factors of production to produce goods and services. They take risks with their own money
and the capital of others in an attempt to make a profit
Production Possibility Frontier;
Infinite Wants Vs. Finite resources
- Because people always want more money so they can buy more goods and services it means
we have unlimited wants
- However at any one point in time the world can only produce a limited amount of goods and
services meaning resources are scarce
- Although the Country’s production potential increases over time so do wants as people
desire a higher and higher standard of living
- Goods that are scarce are called economic goods
- Free Goods do not require resources to produce them as they occur naturally however as
the population expands free goods decrease
- The Basic Economic Problem creates 3 main problems; What is to be produced in what
quantities? How to produce it? (labour intensive vs. capital intensive etc. need to attempt to
maximise output from the allocated resources) and who to produce things for? (need to
decide how the nations income is to be distributed and whether everyone should have an
equal share
Opportunity Costs;
- “The benefits that have been lost/forgone from not taking the net best alternative”
- Every choice involves a range of alternatives which can be graded in terms of benefits gained
- When someone makes a choice all other options have to be sacrificed
- Because resources are limited but wants aren’t we have to make a choice of which wants to
satisfy
- Free Goods have no opportunity cost
Factors of Production;
- Land; Doesn’t only include the physical space but all the natural resources below the earth,
on the surface and in the atmosphere. Includes non-renewable resources such as coal and
oil as well as renewable resources that can be used and replaced if they are not over
exploited. Land is occupationally mobile as it can be switched from one use to another
- Labour; The workforce available to an economy at any point in time. Each worker has a
unique set of inherent characteristics. The value of a single worker is known as their human
capital and can be increased with education or training
- Capital; The stock of machines, tools, factories and other resources used in the production
of goods and services. Working or circulating capital is the stock of raw materials, semi-
finished goods and finished goods waiting to be sold by firm. Fixed Capital is the stock of
factories, offices, tools etc. that is only used in the manufacturing process and isn’t turned
into a final product.
- Enterprise; Comes from individuals known as entrepreneurs who organise the other 3
factors of production to produce goods and services. They take risks with their own money
and the capital of others in an attempt to make a profit
Production Possibility Frontier;
