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5 Cards in this Set
- Front
- Back
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Explain that scarcity exists because factors of production are finite and wants are infinite
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Scarcity is the situation in which available resources, or factors of production, are finite whereas wants are infinite. There are not enough resources to produce everything that human beings need and want.
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Explain that economics studies the ways in which resources are allocated to meet needs and wants
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Resource allocation refers to assigning available resources, or factors of production (land, labour, capital & entrepreneurship), to specific uses chosen among many possible alternatives
It is a study of how to assign resources in order to meet human needs and wants in the best possible way. |
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Explain that the three basic economic questions that must be answered by any economic system are: "what to produce?", "how to produce?", and "for whom to produce?"
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▫ What to produce:
Economies must choose what particular goods and services and what quantities they wish to produce. This refers to resource allocation. ▫ How to produce: Economies must choose how to use their resources in order to produce goods and services - can be produced by combination of factors of productions (e.g. labour, machines etc.). This refers to resource allocation. ▫ For whom to produce: Economies must choose how the goods and services are distributed among the population. This final question is about the distribution of output and income. |
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Resources as factors of production
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Land
Includes all natural resources, including all agricultural and non-agricultural land, otherwise known as 'gifts of nature'. Everything under or above the land e.g. oil reserves, minerals, forests etc. |
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Labour
Includes the physical and mental effort that people contribute to the production of all goods and services e.g. teacher, doctor, taxi driver - all examples of labour. |
Capital
This is known as Physical Capital, a manmade factor of production used to produce goods and services e.g. machinery, tools, factories etc. It is also referred to as 'capital good' or 'investment good' Entrepreneurship A human skill possessed by some who have the ability to innovate by developing new ways of doing things. Entrepreneurship organises the other three factors of production and takes on the risks of success or failure of a business |
