A need: a good or service essential for living
A want: is a good or service which people would like to have, but which is not essential for a living
Economic problem: there exist unlimited wants but limited resources to produce the goods and services to satisfy those wants. This create scarcity.
4 factors of production:
Land: natural resources
Labour: number of people available to make products
Capital: finance
Enterprise: skill and risk-taking ability eg.entrepreneurs
Factors of production: resources needed to produce goods or services.
Scarcity: lack of sufficient products to fulfil the total wants of the population
unlimited wants + limited resources = scarcity
Opportunity cost: the next best alternative given up by choosing another item
Individual
Business
Government
Specialisation: occurs when people and businesses concentrate on what they are best at
Specialised machinery and technologies are now widely available
Increasing competition means that businesses have to keep costs low
Most people recognise that higher living standards can result from being specialised
Division of labour: when the production process is split up into different tasks and each worker performs one of these tasks. It is a form of specialisation.
Advantages:
Increases efficiency and output
Less time is wasted
Quicker and cheaper
Disadvantages:
Bored - efficiency might fall
If one worker absent the whole production might stop
Businesses: combine factors of production to make products (goods and services) which satisfy people's wants.
Combines scarce factors
Produces goods and services
Employs people
Added value: the difference between the selling price of a product and the cost of bought-in materials and components
Can pay other costs
Make profit
selling price of the product - material and bought-in costs = value added by the business
2 way to increase added value:
Increase selling price
reduce the cost pf materials
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