Scribd
Upload
134 views

IGCSE Economics - UNIT 1

The document discusses key economic concepts including: 1) The economic problem of scarcity arises due to limited resources and unlimited wants. Factors of production include land, labor, capital, and entrepreneurship which are used to produce goods and services. 2) Opportunity cost is the next best alternative forgone when making a choice between limited options. Production possibility curves illustrate the maximum combinations of goods an economy can produce with limited resources. 3) Shifts in a PPC can occur due to changes in resources, representing increases or decreases in productive potential.

Uploaded by

Preeti Sinha
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
134 views

IGCSE Economics - UNIT 1

The document discusses key economic concepts including: 1) The economic problem of scarcity arises due to limited resources and unlimited wants. Factors of production include land, labor, capital, and entrepreneurship which are used to produce goods and services. 2) Opportunity cost is the next best alternative forgone when making a choice between limited options. Production possibility curves illustrate the maximum combinations of goods an economy can produce with limited resources. 3) Shifts in a PPC can occur due to changes in resources, representing increases or decreases in productive potential.

Uploaded by

Preeti Sinha
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 20

UNIT 1

• Economic problem
• Factors of production
• Opportunity cost
• Production Possibility Curves
Desert Island simulation game
Economic problem of scarcity
A situation where there is not enough to satisfy everyone’s wants. It causes the economic problem of
limited resources – unlimited wants
 Unlimited Wants
Human beings, in order to survive need a lot of things. Some of these things are very important for
our existence. For example, food, clothing, water, shelter and air. These things can be classified
as Needs. Apart from this there are things which are needed by us but they are not important for our
survival and we can live without them also. For example, going on an expensive holiday, owning a
57 inches Plasma TV. These are known as Wants. This list is never ending and is continuously
increasing.
 Limited Resources
On the other hand, we have limited resources to produce these goods and services we want. There are
not enough car factories to provide cars to everybody on earth. Everything on this planet has some
limits except for our Wants.
Resources are
factors used to
produce other
Scarcity causes economic problem. This is when unlimited wants meet limited resources and
goods there is not enough to satisfy everyone’s wants.
Factors of production
Resources available on earth to make goods and services to satisfy our needs and want are limited.
In economics, factors of production (or productive inputs) are the resources employed to produce goods
and services. These can be categorised as
 Land: All natural resources provided by nature such as fields, forests, oil, gas, metals and other mineral
resources. Payment for land is rent.
 Labour: Human effort used in production which also includes technical and marketing expertise.
Labour can also be classified as the physical and mental contribution of an employee to the production
of the good(s). Payment for labour is wages.
 Capital: Human-made goods (or means of production) which are used in the production of other goods.
These include machinery, tools and buildings. Capital is also referred as capital goods or producer
goods. Payment for capital is interest.
 Enterprise: The skill and risk taking ability of the person who brings together all the other factors of
production together to produce goods and services. Usually the owner or founder of a business.
Payment for enterprise is profit.
MOBILITY OF RESOURCES
All the resources we have on this planet can be utilised in a number of ways. They have
alternative uses. For example, a piece of land can be used for making a factory, or doing
farming or constructing a school and so on. Therefore, we have to choose what is best for us. If
we talk from an economist point of view it means ‘making the optimum use of resource
available’.

Mobility can be measured in two ways


• Geographically - capable of moving from one location to another
• Occupationally - capable of changing use
 Land - occupationally mobile but geographically immobile
 Labour - can be mobile in both ways but may remain immobile because of the following
reasons
 Difference in the prices and housing facilities in different areas and country
 family ties
 Difference in education systems
 Lack of information
 Restriction of movement of workers
 Lack of knowledge of vacancies in other areas
 Lack of qualification and skills
 Capital - mobility depends upon the type of capital
 Enterprise - mobile if the entrepreneur is mobile
 Quantity and quality of factors of production
 LAND - quantity of physical land remains the same but the quantity of other natural resources
may increase. Renewable resources are replaced and can be reused but non renewable resources
deplete with usage. Quality can be improved by using fertilisers. Water and fish quality can be
increased by controlling pollution
 LABOUR - quantity depends on
 number of workers OR the labour force
 the number of working hours
Labour force of a country depends upon:
 Size of population
 The age structure of population
 The retirement age
 School leaving age
 Attitude towards working women
No of working hours depends upon
 Length of average working day set by the government
 Working culture - full time or part time
 Duration of overtime
 Length of holidays taken by workers
 Amount of time lost due to health conditions

Quality of labour can increase by better education, training, more experience and better
healthcare. Increase in the quality of labour leads to increase in productivity leading to increase
in output.
 CAPITAL
• The quantity of capital is influenced by investment. A decision to invest is a decision to use
more capital in producing goods and services.

• Every year a country produces capital goods. Capital goods have a life span. They keep
depreciating with usage.
• Depreciation - loss in value due to wear and tear of goods. These capital goods also have to be
replaced.

• Gross investment - total amount of capital goods produced


• Depreciation - Capital goods which cannot be used anymore
• Net Investment - Gross Investment - depreciation
• Net investment can be positive or negative
• The quality of capital depends upon the technological development in a country
 ENTERPRISE - the quantity of enterprise depends upon no of entrepreneurs in the
country. This can be increased by:
 education system and no of schools
 tertiary or university education in economics and business studies
 Lower corporate taxes
 Governmental support to start ups and small businesses
The quality of enterprise depends upon quality of education and healthcare.
Opportunity Cost

Though we have alternative uses, we have to select the best way to use these resources. When
we choose best alternative, the next best alternative which is left out is known as the
Opportunity cost of making a choice. In other words, the benefits we lost and could have
achieved from the next best alternative.

https://www.eurekalert.org/news-releases/949591
Production Possibility Curve
From the point of view of an Economy, there is an opportunity cost of using its
resources. Production Possibility curve (PPC) shows the maximum combinations of goods and
services that can be produced by an economy in a given time period with its limited resources.
Constructing a PPC and production points
Shape of a PPC

Bowed out or concave Linear


Movements along a PPC

Shows:
• Reallocation of resources
• Opportunity cost of the decision
Shifts in a PPC
 Rightward shift – increase in
the quantity and quality of
resources
 Leftward shift – decrease in the
quantity and quality of
resources
 Outward shift increases the
productive potential. A country
becomes capable of producing
more. This is known as
potential economic growth.
Economic goods and free goods

 Economic good – A product which requires resources to produce it and therefore has an
opportunity cost. These goods are limited in supply and have an economic value. Almost
every good and service you can think of is an economic good.
 Examples – education, car, furniture etc.
 Free good – a product which does not require any resources to make it and so does not have
an opportunity cost. When most people talk about free goods they mean products they don’t
have to pay for. These are not usually free goods as resources have been used to produce
them.
 Sunshine, air, water etc.

You might also like