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LlEconomics
Section:
Topic:
Basic Economic
Problem
Economics: It is a social science that studies human behaviour between unlimited wants and limited resources with their alternative uses. In other words, it just simply tells us how we can make the best use of what we have in order to satisfy our needs and wants. Micro economics The study of the behaviour and decisions of households and firms and the performance of individual markets. Macro economics The study of the whole economy. This includes employment, economic output, inflation etc in the country.
You can touch them
You can't touch
Needs The essential goods and services required for human survival. These include food, shelter, clothing, etc. Goods These are physical items such as tables, clothes, car etc Wants These are good services not essential for survival. These include luxury cars, luxury clothing, etc Services These are non-physical items such as travelling, teaching, Internet etc
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example
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Types of goods:
Economic good: Majority of goods and services are economic goods meaning it takes resources to produce them and they are limited in supply. for example, mobile phones, cars, houses etc. Free goods: Free goods are rare in nature free goods are defined as goods that take no resources to make it. For example, sunshine, water in rivers.
Factors of production:
Factors of production is another term for economic resources. These include land, labour, capital and enterprise.
- land: Land is the gift of nature available for production. E represents all the natural resources which are consumed during a business activity. It includes the Earth in which crops are grown, on which offices and factories are built, what is beneath the Earth such as coal, what naturally occurs on land for example rainforest, seas, oceans and rivers and what is found in them for example fish.
NOTE:
Capital and consumer goods both differ from each other capital goods are used in the production process while consumer goods are goods and services purchased by household for their own satisfaction. When deciding if a good is a capital or a consumer good, it is important to consider who the user is and the purpose of its use.
- Enterprise: enterprises the willingness and ability to bear uncertain risks and to make decisions in a business. Entrepreneurs are the people who organise the other factors of production and who crucially where the risk of losing their money if the business business fails. Entrepreneurs are the people who decide what to produce by taking into account consumer demand and how to produce it.
Income of factors of production:
- Rent is paid against land. - Wages and salaries are paid to labour. - Rent is given for fixed capital and interest can be earned on working capital/money. - Dividends are paid on shares of a company to the shareholders and entrepreneurs are a profit.
Mobility of the factors of production:
- Occupational mobility refers to the ability of a factor of production to change its use. - Geographical mobility is the capability of a factor of production to move from one place/location to another.
Labour:
Occupational mobility: Occupational mobility of labour might be affected due to a number of reasons. There might be lack of information about vacancies in other types of jobs and most importantly lack of appropriate skills and qualifications. E.g A shortage of doctors cannot be solved by hiring bus drivers.
Geographical mobility:
There are several reasons that might affect the geographical mobility of labour including differences in price and availability of housing in different areas and countries, family ties lack of information, restrictions on the movement of workers.
Capital:
Occupational mobility: Occupational mobility of capital depends on the type of the good for example, a photocopier is only used for the purpose it was created to fulfil on the other hand delivery van used originally by a book publisher maybe bought and used by a toy manufacturer to distributes its products. Similarly, an office block may be used for variety of purposes.
Geographical mobility:
Geography mobility of capital also depends on the type of goods for example a helicopter can be used by the army of one country and can be sold to and then used by the army of another country. However, a coal mine or an oil rig are fixed in position And our geographically Immobile.
Sectors in the economy:
- Primary: This sector includes the extractive industries that acquire raw materials from naturally available resources for example, agriculture, mining etc.
- Secondary: This sector comprises of the manufacturing industries that convert raw materials into semifinished or finished goods for example textile industries.
- Tertiary sector: Tertiary sector represents all kinds of services such as banking, retailing, teaching etc.
Opportunity cost:
People are forced to make choices due to the presence of the basic economic problem. Opportunity cost is defined as the next best alternative forgone in simpler terms, it is the cost of a decision in terms of the best alternative given up to achieve it. It can also be referred to as the sacrifice that you have to make in order to achieve a particular aim/product/service etc.
- Opportunity cost and consumers: Consumers are buyers and users of goods and services. An individual has $1000 and they can either buy a laptop or a smart phone. If the individual chooses the laptop, the smart phone becomes the opportunity cost.
- Opportunity cost and workers: Undertaking one job involves an opportunity cost. People employed as teachers might also be able to work as civil servants but they will have to choose. A number of factors influence the preference for the job for instance the wage paid, chances for promotion, job satisfaction to be gained from each job. If the pay of civil servants or the working conditions improve, the opportunity cost of being a teacher will increase.
- Opportunity cost and producers: Producers have to decide what to make. If a farmer uses a field to grow oranges, he cannot keep kettle on that field. Moreover, if a Car producer uses some of his factory space and workers to produce one model of a car, he cannot use the same space and workers to make another model of the car at the same time. In deciding what to produce, private sector firms will tend to choose the option which gives them the maximum profits.
