Section 1: The basic economic problem
● The basic economic problem is that there are unlimited wants but limited
resources.
● A free resource/good is a resource/good that is not limited in supply
● Allocation of resources is how scarce resources are distributed between
competing users.
● A free market system is an economic system where resources are allocated
through the price mechanism
● The price mechanism is used to decide who receives a product or service
The three economic questions are:
1) What to produce
2) How to produce it
3) Who to produce it for
The four factors of production are:
● Land = natural resources used to produce a good or service
● Labour = all human effort and workers
● Capital = human-made goods used to produce other goods such as offices,
factories, machinery, etc.
○ A capital good is wanted for what it can produce
○ A consumer good is wanted for the satisfaction they provide to their
owners
● Entreprerprise = the willingness and ability to bear risks and make decisions
in a business. Entrepreneurs are the people who organise the other factors of
production taking a risk.
Rewards: Firms pay wages to labour, for bearing risks and organising factors of
production entrepreneurs earn a profit, land receives rent and interest is a payment
for capital.
Mobility of factors of production
● Occupational mobility = capable of changing use
● Geographical mobility = capable of moving from one location to another
Mobility of each factor of production:
● Land: occupationally mobile as can be used for a number of purposes;
geographically immobile as it is not possible to move sections of land.
● Labour: both types of mobility vary. Factors that cause geographical
immobility include:
● The basic economic problem is that there are unlimited wants but limited
resources.
● A free resource/good is a resource/good that is not limited in supply
● Allocation of resources is how scarce resources are distributed between
competing users.
● A free market system is an economic system where resources are allocated
through the price mechanism
● The price mechanism is used to decide who receives a product or service
The three economic questions are:
1) What to produce
2) How to produce it
3) Who to produce it for
The four factors of production are:
● Land = natural resources used to produce a good or service
● Labour = all human effort and workers
● Capital = human-made goods used to produce other goods such as offices,
factories, machinery, etc.
○ A capital good is wanted for what it can produce
○ A consumer good is wanted for the satisfaction they provide to their
owners
● Entreprerprise = the willingness and ability to bear risks and make decisions
in a business. Entrepreneurs are the people who organise the other factors of
production taking a risk.
Rewards: Firms pay wages to labour, for bearing risks and organising factors of
production entrepreneurs earn a profit, land receives rent and interest is a payment
for capital.
Mobility of factors of production
● Occupational mobility = capable of changing use
● Geographical mobility = capable of moving from one location to another
Mobility of each factor of production:
● Land: occupationally mobile as can be used for a number of purposes;
geographically immobile as it is not possible to move sections of land.
● Labour: both types of mobility vary. Factors that cause geographical
immobility include:
