Basic Economic Ideas

The Basic Economic Problem

  • Scarce resources to satisfy unlimited wants and needs.
  • How do we solve this problem?
  • By making CHOICES. (Which needs and wants will be satisfied)

The 3 interrelated questions to solve the economic problem

  • What to produce? (Item/service and quantity)
  • How to produce? (Method eg. Mass production)
  • For whom to produce? (Depending on demand and need)

Limited resources/Factors of production

  • Land(natural resources)-eg. Forests,minerals.
  • Labour(human resource)- your workers or employees.
  • Capital –money capital and physical capital used to produce goods and assembly plant.
  • Entrepreneur-Organises the other 3 factors and takes production risk.

Production factors (remuneration)

  • Land- Rent
  • Labour-Wage/salary
  • Capital- Interest
  • Entrepreneur- Profit

Unlimited wants

  • Scale of preference- More urgent wants at the top and less urgent at the bottom.
  • This scale is a product of influences involving culture,upbringing and life experiences.
  • Some wants expand as you grow up, marry etc.

Choice and opportunity cost

  • The real cost of choosing one thing and not another.(Cost of your choice in terms of the best alternative forgone)
  • The benefit you could have had from the next best alternative you have gone without.
  • Eg. You have R40 you are faced with a choice between buying a movie or buying a steers burger. If you choose the burger, the opportunity cost is the movie ticket and vice versa.

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