1. Economic Issues: An Introduction DE3A 34 Outcome 1 Topic 2 Scarcity of Resources

2. The Basic Economic Problem (SCARCITY)  The basic economic problem is scarcity.  The resources available to society are limited while the wants society have are unlimited. Thus scarcity exists.  What are resources?

3. The Factors of Production LandCapitalLabourEnterprise Goods and services

4. The Factors of Production  In economics, resources are often referred to as the factors of production i.e. things that wee use to produce goods and services. The factors of production are:  LAND :-This is all natural resources used in production. Examples of land would include oil, forests and fisheries.  LABOUR:-This is all the physical and mental effort of humans used in the production process. Examples include doctors, teachers and plumbers

5. The Factors of Production  CAPITAL:-This is all person made items which are then used to make goods and services. Examples include factories, heavy machinery, buildings and hammers.  ENTERPRISE:- Enterprise is the combining of the other three factors of production to make goods and services – the vital spark as it were. The entrepreneur is the person who does this by having the ideas and taking the risks.

6. Factor Incomes  The factors of production earn factor incomes. FactorIncome  LandRent  LabourWages  CapitalInterest  EnterpriseProfit

7. Limited Resources  Now let’s reconsider our definition of scarcity that appeared earlier.  We stated that resources were limited.  The world has limited resources in terms of land, labour and capital.  Collectively we can produce a limited amount of goods and services with the resources available to us, however…….

8. Unlimited wants  Human nature dictates that we have unlimited wants.  Regardless of our wealth there is always something that we would like!  This gives us our basic economic problem.  Unlimited wants and limited resources.

9. The Basic Economic Problem use resources for… the production of goods and services for… consumers to… satisfy needs which then want to…

10. Scarcity  So, taking into consideration the preceding section on limited resources and unlimited wants.  The basic economic problem of scarcity can be said to exist, but does it exist everywhere?

11. Scarcity Everywhere?  In some countries such as Ethiopia where food and shelter are hard to come by for many we can see that scarcity exists.  However there are always goods on the shelves of our shops aren’t there?  There may be but the point is, as illustrated in the last activity, no matter how ‘rich’ a nation may be, the people still want to have more and more.

12. Scarcity Everywhere?  Thus scarcity is a relative concept, being more apparent in some places than in others.  However, regardless of appearances, because of unlimited wants, scarcity exists everywhere.

13. Choice  Due to scarcity, all economies face choices.  There are three big, basic choices that have to be made.  These are: 1. What to produce? 2. How to produce it? 3. For whom?  Activity 1  What is economics about? What is economics about?  Task 2

14. What to produce?  What goods and services are the economy going to make with their limited resources? For instance are they going to make tables, chairs or stools or are they going to make a combination of the goods.  They also have to decide what quantity of each type of good and service they are going to produce. For instance, will they produce more chairs than stools?

15. How to produce it?  In what way will they combine the factors of production to make the goods and services they have chosen to make. For instance, if the economy decides to make chairs will they make mass produced chairs using a lot of capital in the form of machinery, or will they make hand crafted chairs which are labour intensive in production?

16. For Whom?  Finally, once the economy has decided what it is going to make and how it is going to produce it, the decision has to be taken on who the things are being made for.  This is a question of distribution – who is to get what?

17. Applying your Knowledge!  Activity 2  What is economics about? What is economics about?  Complete Task 4.