Notesale: Turn your study into money

Document Preview

Extracts from the notes are below, to see the PDF you'll receive please use the links above

---

Scarcity and Choice
Economics is a social science that studies how individuals, governments, firms and nations make choices
regarding how to allocate scarce resources in order to satisfy unlimited wants
...
e
...

Wants vs
...
For example,
food, clothing, water, shelter and air
...
For example, going on a
holiday
...

Resources/Factors of Production:
The term resources are used to describe the goods or services available in an economy which are used
to produce valuable consumer products
...

In economics, the factors of production are organized into four broad categories:








Land: Refers to all natural (i
...
not man-made) inputs into production
...
Land is usually a fixed resource for any economy
...

Labour: Refers to all human inputs into production
...
e
...
This factor of production is a flexible resource as workers can
be allocated to different areas of the economy for producing consumer goods or services
...

Capital: All man-made inputs into production
...
These assets include
buildings, production facilities, equipment, vehicles and other similar items
...
Entrepreneurship is considered a factor of production
because economic resources can exist in an economy and not be transformed into consumer

goods
...


Definition of scarcity:
The gap between limited resources and unlimited wants
...
Should the scarce resources
be used to operate more hospitals or hotels? Should the government funds go towards health
initiatives or education initiatives?
How best these to produce goods and services: What combination of resources should be used
in order to produce these goods and services? What is the best use of our scarce resources?
Should coal be produced inside the country or should it be imported?
Who is to receive goods and services: Who will get hospital treatment? Who will not?
Implications of Scarcity

Scarcity implies that resources are limited and therefore not all of society’s goals may be pursued at the
same time
...

If a resource is diverted towards one use, it is no longer possible to use it for something else
...
Therefore,
it becomes essential to choose what would be the best use of the particular resource
...
e
...
Individuals need to select the goods that give them the
most satisfaction
...

Governments need to decide how to allocate their resources for their citizens
...

Having to make a choice leads to the concept of “opportunity cost
...
”
Key points to remember:





Opportunity cost does not refer to the option selected
...

It can be thought of as “what could have been done instead”
...


Examples:




If a piece of land is used to build a factory instead of a school, the opportunity cost is the school
that has not been constructed
...

If you decide to sleep in late on a workday, the opportunity cost would be the benefits of getting
up in time for work or school
...
Free Goods:
The concept of choice and scarcity also applies to the goods available, which leads to a distinction
between economic and free goods
...
This means that if one person obtains one such good, another
person will be deprived of it
...
They can be purchased using
a medium of exchange, either in the form of money or in the form of barter
...

Free Goods: Goods that are not scarce and which do not have economic value
...
Free goods are either unlimited in supply or
abundant

---