1.1/2 - Introduction to Economics

The 3 Main Economic Groups:

Consumers

Producers

Government

A good is a tangible product - it can be seen and touched.

A service is an intangible product - it cannot be seen and touched.

A consumer buys goods and services for their own personal use.

It’s considered that consumers have little power in a market because they mainly act individually.

Producers supply goods and services.

A government makes and enforces rules within a country:

• Speed limits

• Health and safety laws

• Etc.

A government also spends money within an economy:

• Hospitals

• Roads

• Army

• Etc.

A government acts as both a producer and a buyer.

Interdependence is where one group responds to the actions of another group.

The Factors of Production:

Capital

Enterprise

Land

Labour

They are the resources in an economy that can be used in the production process.

Capital is the human-made aids to production.

• Machinery

• Tools

• Transport

Enterprise is when the other factors of production are organised to make goods/services. This requires the entrepreneur or organisation to organise production and bear the risks of the project.

Land is the natural resources in an economy.

1. Oil

2. Coal

3. Trees

Labour is the human resources that are available.

Labour depends on:

• The size of the population.

• The impact of migration.

• The working age within a country.

• The quality of labour (extent of education and training).

• The health of the population.

The combination of the factors of production begins with Enterprise. The entrepreneur bears the risk and takes forward a business idea. After this, the entrepreneur decides on the quantities of the other factors of production to combine - they organise them (Capital, Land, Labour). The goods and services and are then produced.

Scarce resources are where there are fewer things to make goods/services than are desired.

Unlimited wants means the desire for anything a consumer would like, whether or not they have the resources to purchase it.

An example of scarce resources and unlimited wants is:

The limited resource of oil and unlimited competing uses for it, such as petrol or heating.

Wants are unlimited - anything a consumer desires.

Needs are limited only to what is needed to survive.

The basic economic problem is that human have unlimited wants with scarce resources in the world.

The allocation of resources is the choice between different uses of resources.

Choices and decisions must be made regarding:

• What should be produced? (Should resources be used to make…)

• How should it be produced?

• Whom should it be produced for?

Opportunity Cost is something that is given up when making a decision on the use of scarce resources.

For example, you have 50p to spend on either chocolate or crisps. The one that you don’t choose is the opportunity cost.

An economic choice is an option for the use of selected scarce resources.

Economic sustainability is the best use of resources in order to create responsible development or growth, now and into the future.

Economic sustainability considers the impact on a range of economic factors:

• The associated economic costs of a decision.

• Unemployment.

• Government spending or tax revenue.

Social Sustainability is the impact of development or growth that promotes an improvement of quality of life for all, now and into the future.

For example, if a firm wants to build a factory in the countryside near a village, the impact on the residents must be considered when considering social sustainability.

Environment sustainability is the impact on renewable and non-renewable resources, pollution creation and climate change, and the availability of future resources.

It is the impact of development or growth where the effect on the natural world is small and possible to manage, now and into the future.

Renewable resources can be replaced as long as they’re not overused. For example, forests.

A non-renewable resource cannot be replaced after usage. For example, coal.

An economist must consider:

• Economic sustainability

• Social sustainability

• Environmental sustainability

when making an economic choice.