The Economic Problem & Economic Resources AS Economics Unit 1

Aims and Objectives Aim: To understand the nature of the economic problem and economic resources. Objectives: Define the economic problem and opportunity cost. Describe the factors of production. Analyse the effects of inefficient allocation of resources.

Starter Discussion Discussion: Is it inevitable and fair (due to the scarcity of resources such as water) that some countries are poor and others are wealthy?

Economic Problem Solving An Economic System attempts to solve the following problems: What should we produce? How should we produce it? For whom should it be produced?

Economic Activity Definition: The activity between people, businesses, organisations or nations which involves trade. Examples include: Shopping Trade between nations Bartering for goods and services DIY Car boot sales Charity Work. Drug Trading

Scarcity There is not enough resources to meet everyone's wants and needs, this is scarcity. The economic problem is therefore that there are infinite wants and limited resources. Hence we have rich people and poor people, rich countries and poor countries.

What is the next best good or service for each of the following: Opportunity Cost What is the next best good or service for each of the following: Petrol

Opportunity Cost Each choice you make will carry a cost, the alternative that is given up as a result. Definition: The next best alternative forgone (given up) when an economic decision is made. Eg. Deciding on AS Levels or GCSEs

Economic Goods & Free Goods Economic goods are goods which have an opportunity cost attached to them. Free goods are goods for which there are no opportunity costs. E.g. Air Discussion: With the worlds population growing so fast, and with pollution levels increasing is clean air a scarce good and does it have an opportunity cost?

Economic Resources Land Labour Capital Enterprise

Goods like minerals, land, and all the resources we take from it.

Labour This includes all of the potential workforce, but includes not just the physical people, but their skills, intelligence and abilities.

Capital Stock of goods used to make other goods/services. Includes computers, machinery and railways.

Enterprise Refers to risk takers who are prepared to work to bring the other three factors of production together to make goods and services.

Factors of Production FACTORS OF PRODUCTION Land Labour Capital Output of goods or services for sale in markets Land Enterprise Capital Labour FACTORS OF PRODUCTION A firm, business or enterprise

Rent Wages Interest Profit Rewards or Payments

Non-Renewable and Renewable Economic Resources Problems Non-renewable such as oil and coal. Renewable such as wind or solar.

What happens when the oil runs out?