We are all parts of an economy. We need and want many goods and services - we, individually and as groups, have unlimited wants. For example, if the students in your class were asked to write down all the things they want, the list would in all probability, be extremely long. If the experiment were repeated across the whole country, the list would be so enormous that it would be impossible to fulfil. This is because, compared with the unknown, potential desires of individuals for more and better goods and services, the means for satisfying these wants i.e. resources, are in strictly limited supply, or as economists would say, scarce. So economics is:
THE STUDY OF HOW SCARCE RESOURCES ARE OR SHOULD BE USED
Economics looks at these scarce resources and aims to see how they can be used (economists say allocated) in the most efficient way. So we can say that the fundamental problem that we study in economics is how best to allocate scarce resources amongst all their many alternative uses in order to satisfy human wants.
So, we know that the fundamental economic problem is that of scarcity. There are simply not enough resources to provide sufficient goods and services to satisfy the world's unlimited wants. These resources are known as the FACTORS OF PRODUCTION and economists split them into four groups. What do you think the main groupings are? Make some suggestions, and then click away. Think carefully what firms need in order to produce goods and services. We often call these factors of production the inputs for production.
Never forget, however, that one of the scarcest and most valuable resources available to us is a clean, sustainable environment.
In the world economy of today, which is increasingly dominated by large multinational corporations, the entrepreneur of conventional economic theory is becoming increasingly difficult to identify. Why do you think this is?
Payment to factors of production
These factors of production that we have identified each earn a different form of income. When we offer our labour services to an employer, we don not do it out of some misplaced loyalty or altruism; we do it to earn money. So from labour we earn an income of wages. What do you think the other factors of production earn? Have a think and then click on INCOMES.
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