The Basic Economic Problem:
Economics – A social science concerned with the production, distribution, and consumption
of goods and services.
Economics differs from other natural sciences, as it is related to society and its
people.
Therefore, unlike Physics for example, its laws are influenced by human behaviour
How decisions are influenced:
Positive statements – Objective statements that can be tested by referring to the
available evidence.
Normative statements – Subjective statements that contain a value judgement and
cannot be scientifically tested.
People’s views regarding the best option are influenced by both positive
consequences and moral judgements
Economic Activity:
Economic activity – Any action that involves producing, distributing or consuming products
or services.
The purpose of economic activity is the production of goods and services to satisfy
needs and wants
Key economic decisions involve: What to produce, how to produce it and who to
produce it for.
Economic resources:
Economic resources – Inputs used to help produce goods or provide services. Known as
factors of production
Capital – Goods used to produce other goods (E.G Machinery)
Enterprise – Organising factors of production and taking risks
Land – Natural resources available for production (E.G Wind or solar power)
Labour – The human input into the production process
Scarcity and allocation of resources:
Scarcity – Where resources are finite and in limited quantity.
The basic economic problem is humans have unlimited wants, but resources (E.G the
environment) are scarce
As a result, choices have to be made about how scarce resources are allocated to
need these needs and wants.
Opportunity cost – A cost of making a choice in terms of the next best alternative.
Economics – A social science concerned with the production, distribution, and consumption
of goods and services.
Economics differs from other natural sciences, as it is related to society and its
people.
Therefore, unlike Physics for example, its laws are influenced by human behaviour
How decisions are influenced:
Positive statements – Objective statements that can be tested by referring to the
available evidence.
Normative statements – Subjective statements that contain a value judgement and
cannot be scientifically tested.
People’s views regarding the best option are influenced by both positive
consequences and moral judgements
Economic Activity:
Economic activity – Any action that involves producing, distributing or consuming products
or services.
The purpose of economic activity is the production of goods and services to satisfy
needs and wants
Key economic decisions involve: What to produce, how to produce it and who to
produce it for.
Economic resources:
Economic resources – Inputs used to help produce goods or provide services. Known as
factors of production
Capital – Goods used to produce other goods (E.G Machinery)
Enterprise – Organising factors of production and taking risks
Land – Natural resources available for production (E.G Wind or solar power)
Labour – The human input into the production process
Scarcity and allocation of resources:
Scarcity – Where resources are finite and in limited quantity.
The basic economic problem is humans have unlimited wants, but resources (E.G the
environment) are scarce
As a result, choices have to be made about how scarce resources are allocated to
need these needs and wants.
Opportunity cost – A cost of making a choice in terms of the next best alternative.
