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 services.eg.car assembly plant.
- Entrepreneur-Organises the other 3 factors and takes production risk.
Production factors (remuneration)
- Land- Rent
- Capital- Interest
- Entrepreneur- Profit
- 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.