<1.1 THE NATURE OF THE ECONOMIC PROBLEM>

"Welcome to Economics!"

--THINK AHEAD--

Scenario: "You are stranded on a desert island with a group of people. A rescue boat will arrive in 7 days, and as your ship sank, you, as the only diver, managed (just) to salvage FOUR items from the list of 8 below. Rank them in order of importance for your survival, from 1 (the most important) to 8 (the least important)."

⚠️"Be prepared to share your reasoning!"⚠️

"OK, I'm sure in an ideal world you needed and wanted to take everything, but as you are the only diver, that was impossible, so you had to make choices, which meant you gave up on certain items and thus only satisfied some of your needs.

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"Now if I told you that economics is the study of decision-making (which inevitably involves making choices and sacrifices) that occurs due to the fact that the productive resources needed to make 'stuff' are limited while the needs and wants of society are unlimited, can you relate this definition to the survival scenario we just did?"

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--TASK--

"Click on the padlet below and add your answer; it is 100% anonymous to the class (but not me), so don't be shy!."

--THINK AHEAD--

"Still not sure what I mean? Well, we know it's something to do with decision-making and resources, right? So let's watch the following video and try to pick out all the 'What?', 'How?', and 'For whom?' decisions made by the 'Castaway' as well as all the limited resources such as natural resources, man-made equipment, and labour he uses."

"Ok now the following definitions should make more sense!"

--1.1.1 LIMITED RESOURCES + UNLIMITED WANTS--

--UNLIMITED WANTS--

First things first, we can all agree that our WANTS ARE UNLIMITED, you may tell yourself otherwise but the fact that you have 5 old phones at home and 200 pairs of trainers tells another story ;)
Now how is this related to economics you may ask? Well economics only exists because the wants of society are never-ending, and clearly, SOME PEOPLE'S WANTS ARE MORE ABLE TO BE SATISFIED THAN OTHERS, but WHY CAN'T ALL WANTS BE SATISFIED?

--LIMITED RESOURCES--

...the answer to this question is related to the fact that most of these UNLIMITED WANTS require PRODUCTIVE RESOURCES to be used, however, these RESOURCES ARE LIMITED in their quantity and have to be used sparingly. For example oil and workers.

--FACTORS OF PRODUCTION--

These limited productive resources that an economy possesses can be categorised into 4 types (factors), AKA 'The 4 factors of production':

1. LAND: This factor refers to the natural resources needed in production and includes, rivers, lakes, coal deposits, timber etc...
2. LABOUR: This factor refers to the human resources, needed in production such as factory workers, and doctors....
3. CAPITAL: This factor refers to man-made aids/tools used in the production process. They are often referred to as 'Capital goods' and when combined with land and labour produce more units of output.
4. ENTREPRENEURSHIP: This factor carries out two functions. First, the enterprise factor organises the other three factors of production. Second, enterprise involves taking the risk of production, which exists in a free enterprise economy.

--SCARCITY--

With UNLIMITED WANTS + LIMITED PRODUCTIVE RESOURCES, we say that 'SCARCITY' exists, and that...

"...due to scarcity, CHOICES about how these limited resources are used ('ALLOCATED') must inevitably be made"

--1.1.2 ECONOMIC GOODS vs FREE GOODS--

"On sports day the sun is blazing, but there are only 12 shade tents. Students argue the school should ‘make shade free too’. Why is sunshine available to all while tents must be counted, booked, and sometimes rented?"

--INTRODUCTION--

As economics is ONLY CONCERNED with THE ALLOCATION OF SCARCE GOODS (Which are called 'ECONOMIC GOODS'), we can IGNORE goods that aren't considered scarce, which are called 'FREE GOODS'
"But how to tell whether a good is an economic or a free good?"

Well an ECONOMIC GOOD will ALWAYS satisfy these conditions:

1) People are willing to pay a price for it.
2) If it was priced at zero dollars there would be a shortage, in other words at £0, the supply would not be enough to satisfy demand.
3) It's production uses resources (e.g labour) that have an alternative use, that has to be forgone (given up on).

--ECONOMIC GOOD TASK--

Write a definition of an economic good and apply the three conditions above to NAISHK to show that it is considered an ECONOMIC GOOD.
"An economic good is defined as a type of good that satisfies the following conditions...., an example of an economic good is NAISHK because...."

--FREE GOOD TASK--

Pt. 1) Next, as a free good is the opposite of an economic good reword the conditions below to reflect that of a FREE GOOD

Well an ECONOMIC GOOD will ALWAYS satisfy these conditions:

1) People are willing to pay a price for it.
2) If it was priced at zero dollars there would be a shortage, in other words the supply at £0, would not be enough to satisfy demand.
3) It's production uses resources (e.g labour) that have an alternative use, that has to be forgone (given up on)

Pt. 2) Next, apply the three new conditions above to 'AIR IN THE SKY' to show that it is considered a FREE GOOD.

"Air is generally considered an economic good because...."

PAST-PAPER QUESTIONS & MS

--PAST-PAPER MCQ--

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