Outcome One: Explain the allocation of resources in an economy The Basic Economic Problem

 Introduction  What is scarcity?  The ‘four’ types of resources and examples  Unlimited wants  Choice and opportunity cost  Concluding remarks 2

3  Economics involves the study of how societies use and allocate scarce economic resources to satisfy unlimited wants  All societies across the world, irrespective of their wealth, face the fundamental problem of scarcity

Scarcity Task 4

 ‘The excess of human wants over what can actually be produced. Because of scarcity, various choices have to be made between alternatives’ (2004: 5). 5

 Human wants across the world are unlimited  Resources available to satisfy these wants are strictly limited  Quantity of goods and services produced to satisfy our wants are also limited  This situation is known as the ‘basic economic problem’ 6

 Human, natural and man-made aids to the production of goods and services  Individuals will then ‘consume’ these goods and services to satisfy their material needs and wants 7

8 The ‘Four’ Economic Resources? a. Landb. Capitalc. Labour d. Enterprise Goods and services

a. Land: all the natural aids to production b. Capital: all the manufactured aids to production c. Labour: all the human effort to production ◦ Physical effort ◦ Mental effort  Alternative uses for resources 9

 Entrepreneur or enterprise  Responsible for: ◦ Organising production ◦ Deciding how the other three economic resources will be used 10

 The entrepreneur must make decisions about: ◦ What to produce ◦ How to produce ◦ Where to produce  Aim to make a profit  Risk-taker 11

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 Entrepreneur should not be classified as a separate economic resource  Entrepreneur is just another form of labour  Risk-taking in other forms of employment: ◦ The armed forces ◦ The police ◦ The fire service 13

1. In a society, are human wants limited or unlimited? 2. In a society, are resources limited or unlimited? 3. Explain the meaning of the term scarcity. 4. State and explain the four types of resources. 14

 Scarcity of resources to satisfy human wants  Individuals are faced with a choice  Must choose which wants to satisfy and which wants remain unsatisfied  Choice exists at all levels in our society 15

 Many different groups will play a part in deciding how to use resources: 1. Consumers 2. The Government 3. Local authorities 4. Producers 16

 Choices involve sacrifices  If scarce resources are used in one way then other alternative uses will have to be forgone (turned down)  The real cost of using resources can be measured in terms of opportunities forgone 17

 Economists talk about the opportunity cost of economic choices Example  A Local Authority wants to build a school and a community centre but currently can only afford enough resources to build one or the other 18

 What happens if the Local Authority decides to build the school?  The local authority turns down the community centre  Therefore, the opportunity cost of building the school is the community centre  The opportunity cost is the next best alternative choice forgone (the choice you turn down) 19

1. Explain what you understand by the concept of choice. 2. What is the opportunity cost of going to the cinema to see a film? 3. Can you think of an example of opportunity cost you have experienced recently? 20

Questions 1. Explain an economic choice which each of the following groups may have to make and describe the possible opportunity costs involved. a. The Chancellor of the Exchequer b. An individual consumer c. A local Shop manager d. The college principal

 Economics can be separated into two main branches:  Microeconomics deals with individual parts of the economy. Looking at parts of the economy through a microscope i.e. ◦ Behaviour of producers and consumers  The market mechanism  Costs, revenues and profits 22

 Macroeconomics involves the study of the economy as a whole. It looks at the bigger picture.  Concerned with four main areas: ◦ Economic growth ◦ Employment and unemployment ◦ Inflation ◦ International trade 23

 Which of these is micro and which is macro? 1. The problems faced by a firm setting up in the North of Scotland? 2. A slow down in the growth of the economy? 3. The level of prices (inflation) in the economy? 4. Increase in demand for computers produced by a computing firm? 5. Changes in the overall level of demand for goods and services? 6. Increase in unemployment levels in the economy? 24

 Economics is the study of how societies use and allocate scarce resources  The Basic Economic Problem is scarcity ◦ Limited resources ◦ Unlimited human wants  Choice is the decision about which wants to satisfy/remain unsatisfied  Every choice involves an opportunity cost 25

 The Market Mechanism 26