Nicole Li
1.1 The nature of the economic problem
Scarcity. The resources available are insufficient to satisfy all the unlimited human needs and wants. Therefore,
we must all make choices about how we use our limited resources by deciding what G&S we will produce and
What is the basic economic problem? consume.
Non-renewable resources cannot be replaced in time for humans to consume considering the rate in which we
Why are resources finite and limited in are using it up.
supply? Renewable resources take time and more finite resources to be produced.
1.2 The factors of production
Definition of production The using up of resources/FoP to produce G&S to satisfy human wants and needs
Two types of products Goods and services
What is a productive activity? using inputs (4FoP) to produce outputs (G&S)
Definition of a 'not productive activity' any activity/G&S that fails to satisfy a human need or want
Definition of 'producers' The people and organisations which combine FoP to produce G&S
Why is it impossible to satisfy all human Human wants=unlimited
wants? Resources=scarce relative to human wants/limited
Difference between human need and human Human needs=essential to human survival, can be satisfied
want. Human wants=not necessary for human survival, can never be fully satisfied
Definition of 'free goods' items that we may need or want that are without limit and freely available, and the production of it incurs zero
opportunity cost
Fully explain 4 characteristics of 'free goods', ∵unlimited in supply+freely available+not produced from scarce resources ∴people are not willing to pay for
list some examples them
items that are limited in supply+produced from scarce resources+not freely available, therefore people are
Definition of 'economic goods' willing to pay to obtain these limited economic goods in order to satisfy some of their wants
Our consumption of economic goods will
result in... fewer economic goods being available to other people
List some examples
No.
Even it is free of charge (=freely available)
it's produced from scarce resources
If a good is distributed out freely, is it a free +limited in supply
good? is economic good
Definition of 'consumption' the using up of G&S to satisfy human needs and wants
Definition of 'consumers' the people and organisations that buy G&S to satisfy some of their wants
Definition of 'consumption expenditure' the total amount consumers spend each period on economic goods
Consumers engage in trade or exchange with producers to obtain those economic goods they cannot produce
themselves to satisfy their wants. Can be monetary exchange (consumer pay with their wages) or barter
What is exchange? economy (exchange good with good).
To increase the production capacity of a firm. (Allocating more resources to the production of capital goods will
Why should we invest in capital goods? reduce the amount of resources available to produce consumer G&S.)
Definition of 'consumer good' an economic good that satisfies an immediate consumer need or want
consumer durables
non-durable goods
3 types of consumer goods consumer services
Definition of 'capital goods' economic goods that don't satisfy any immediate human needs or wants
What is an 'investment' the purchase of capital goods
Definition of 'Factors of Production (FoP)' the scarce resources we use up in the production of G&S to satisfy human needs and wants
Capital (man-made machinery needed to produce output)
Enterprise (the ability to organise production in a firm)
Labour (human skills and effort needed to produce output)
What are the 4FoP? (extras: in notes) Land (natural resources obtained from land)
What are 'factor rewards' the payment different FoP require and receive in order to participate in productive activity
Why do we need them? Producers are motivated by monetary returns to supply scarce resources to other firms.
Capital-interests
Enterprise-profits
Labour-wages
4 types of factor returns (extra: in notes) Land-rent
Formula for profits Total revenue−total costs
the ease with which resources or FoP can be moved from one productive activity to another without incurring
Definition of 'factor mobility' significant costs or a loss or output
within a firm
between firms in the same industry
between industries
4 movement patterns of FoP between different countries
increase total output of G&S (less productive activity→more)
allows different FoP to be moved into their best possible uses
enables firms to improve efficiency of production as the quantity and quality of FoP changes
Importance of factor mobility allows firms to change the type of G&S they produce as human needs and wants change
Occupational mobility (move among different productive activities)
2 types of factor mobility Geographic mobility (move among different places)
Explain the factor mobility of each of the FoP.
(see in notes)
1.3 Opportunity cost
Definition of 'opportunity cost' The next best alternative forgone.
1.1 The nature of the economic problem
Scarcity. The resources available are insufficient to satisfy all the unlimited human needs and wants. Therefore,
we must all make choices about how we use our limited resources by deciding what G&S we will produce and
What is the basic economic problem? consume.
Non-renewable resources cannot be replaced in time for humans to consume considering the rate in which we
Why are resources finite and limited in are using it up.
supply? Renewable resources take time and more finite resources to be produced.
1.2 The factors of production
Definition of production The using up of resources/FoP to produce G&S to satisfy human wants and needs
Two types of products Goods and services
What is a productive activity? using inputs (4FoP) to produce outputs (G&S)
Definition of a 'not productive activity' any activity/G&S that fails to satisfy a human need or want
Definition of 'producers' The people and organisations which combine FoP to produce G&S
Why is it impossible to satisfy all human Human wants=unlimited
wants? Resources=scarce relative to human wants/limited
Difference between human need and human Human needs=essential to human survival, can be satisfied
want. Human wants=not necessary for human survival, can never be fully satisfied
Definition of 'free goods' items that we may need or want that are without limit and freely available, and the production of it incurs zero
opportunity cost
Fully explain 4 characteristics of 'free goods', ∵unlimited in supply+freely available+not produced from scarce resources ∴people are not willing to pay for
list some examples them
items that are limited in supply+produced from scarce resources+not freely available, therefore people are
Definition of 'economic goods' willing to pay to obtain these limited economic goods in order to satisfy some of their wants
Our consumption of economic goods will
result in... fewer economic goods being available to other people
List some examples
No.
Even it is free of charge (=freely available)
it's produced from scarce resources
If a good is distributed out freely, is it a free +limited in supply
good? is economic good
Definition of 'consumption' the using up of G&S to satisfy human needs and wants
Definition of 'consumers' the people and organisations that buy G&S to satisfy some of their wants
Definition of 'consumption expenditure' the total amount consumers spend each period on economic goods
Consumers engage in trade or exchange with producers to obtain those economic goods they cannot produce
themselves to satisfy their wants. Can be monetary exchange (consumer pay with their wages) or barter
What is exchange? economy (exchange good with good).
To increase the production capacity of a firm. (Allocating more resources to the production of capital goods will
Why should we invest in capital goods? reduce the amount of resources available to produce consumer G&S.)
Definition of 'consumer good' an economic good that satisfies an immediate consumer need or want
consumer durables
non-durable goods
3 types of consumer goods consumer services
Definition of 'capital goods' economic goods that don't satisfy any immediate human needs or wants
What is an 'investment' the purchase of capital goods
Definition of 'Factors of Production (FoP)' the scarce resources we use up in the production of G&S to satisfy human needs and wants
Capital (man-made machinery needed to produce output)
Enterprise (the ability to organise production in a firm)
Labour (human skills and effort needed to produce output)
What are the 4FoP? (extras: in notes) Land (natural resources obtained from land)
What are 'factor rewards' the payment different FoP require and receive in order to participate in productive activity
Why do we need them? Producers are motivated by monetary returns to supply scarce resources to other firms.
Capital-interests
Enterprise-profits
Labour-wages
4 types of factor returns (extra: in notes) Land-rent
Formula for profits Total revenue−total costs
the ease with which resources or FoP can be moved from one productive activity to another without incurring
Definition of 'factor mobility' significant costs or a loss or output
within a firm
between firms in the same industry
between industries
4 movement patterns of FoP between different countries
increase total output of G&S (less productive activity→more)
allows different FoP to be moved into their best possible uses
enables firms to improve efficiency of production as the quantity and quality of FoP changes
Importance of factor mobility allows firms to change the type of G&S they produce as human needs and wants change
Occupational mobility (move among different productive activities)
2 types of factor mobility Geographic mobility (move among different places)
Explain the factor mobility of each of the FoP.
(see in notes)
1.3 Opportunity cost
Definition of 'opportunity cost' The next best alternative forgone.
