LEARNING OUTCOME 1 THE BASIC ECONOMIC PROBLEM

RESOURCES ARE LIMITED land - nature’s contribution to production labour - human contribution to production capital - man-made contribution to production enterprise - the skill to combine resources for production WANTS ARE UNLIMITED result - SCARCITY! - therefore CHOICES MUST BE MADE

OPPORTUNITY COST Resources have many uses. When you make a choice, what you do without is the opportunity cost of the choice you made. Production Possibility Curves show possible combinations of 2 products with a given set of resources. A - possible but inefficient B - preferred as there are no unused resources C - not possible with existing resources Combinations inside and on the boundary are possible. Combinations outside are not with the resources available.

Different Economic Systems A Planned Economy All decisions are made by the Central Government Examples – Cuba and China Less choice of goods and services is available and Shortages are common Little or no incentive to work to the best of your ability

A Free Market Economy Examples – The USA and Japan Resources are allocated through the price system A wide variety of goods and services are available Goods and services which are not profitable have to be supplied by the government Wide gap between rich and poor

A Mixed Economy Has features of both planned and free market Examples – the UK and France Has both a private sector and a public sector Can be subject to economic fluctuations The government monitors and regulates the activities of private firms There is a social security system for those who need it, funded from tax revenues

QUIZ What is another name for resources? Factors of Production Name 4 resourcesLand, Labour, Capital and Enterprise In economics does scarce mean difficult to find? No What does scarcity mean in economics? Limited in Supply What is opportunity cost?What has to be done without when making a choice What does efficiency mean in economics? Maximum output from least use of resources – best use of resources How can resources be increased? Land – increased fertility, reclamation Labour – immigration Capital – sound investment Enterprise - education