Basic Economics
...ven at the cost of life; rich countries produce luxury items for those who can afford them as opposed to necessary items for those who need them Opportunity Cost When the best alternative is chosen from a range of alternatives the second best choice is known as the opportunity cost. Economic Resources The scarce resources are known as the factors of production. These can all be divided into four categories: • Land, labour, capital, and enterprise Land: is any factor of production that is provided by nature Capital: is any factor of production which is man made Labour: is the human input into production (paid a wage or salary) Enterprise: also a human factor and is that activity which organises the other factors (gains wealth through profit) Economic Systems The way a society organises itself to address the problem of scarcity is known as an economic system. The three fundamental resource allocation systems are: Traditional: employs methods which have been handed down from generation to generation Market: A system in which individuals own the factors of production and decide individually how to use them; a system which completely decentralizes economic decision making. Planning: A system in which the government controls the factors of production All real world economic systems are a combination of these three. Transition economies are attempting to move from one economic system to another. Ownership of resources Eco systems can also be classified by ownership: public/private Market: predominantly private Planned: predominantly public Methodology in economics 1. recognise problem 2. cut away unnecessa...