The economic problem
The Economic Problem –
The main reason we have shortage or scarcity is because we don’t have enough resources to make everything people need and want. People’s wants are unlimited, but the resources to produce them are limited.
4 Factors of Production
1. Land All natural resources from nature. Examples: fields, forests, oil, gas, metals, minerals.
2. Labour People who work to produce goods and services.
3. Capital Machines, tools, equipment and money used to make products.
4. Enterprise The skill and risk-taking of a person who brings all other factors together. Example: business owners (entrepreneurs).
Why Scarcity Happens?
Because these four factors are limited. But people’s needs and wants are unlimited. So a country can never produce everything for everyone — this is the economic problem of scarcity.
Limited Resources
We all have many wants, but only limited money and resources. So we must choose which wants to satisfy and which ones to leave.
Why We Need to Choose?
Because our resources (money, time, materials) are limited, but our wants are unlimited.
Opportunity Cost
Whenever we choose one thing, we give up something else. The thing we give up is called opportunity cost.
Examples
Using money for a bus to school or using it to buy a new pen.
Buying trainers or saving for a smartphone.
Important Point
Opportunity cost is the next best alternative we give up. This happens to:
Consumers (like us)
Businesses
Governments
We must think carefully so we don’t lose something more valuable than what we choose.