Scarce Resources and Infinite Human Wants

Unit 1 Basic Economic Principles

The existence of scarcity of goods and services in society is the reason why the study of economics exists.

Goods and services are ______, but more importantly the material wants of human beings are ______.

An important distinction must be made between ______and needs. In order to survive people only really need food, shelter and clothing and the present level of world resources would be sufficient to provide these for everyone. However, people desire or want many things no matter how much they have at any point in time. Since human material wants are ______or infinite, scarcity exists in all societies.

Choice and Opportunity Cost

As resources are scarce and wants are infinite, this gives rise to the ______problem, as ______have to be made.

At an individual level people must decide how to use the scarce resource of time. If faced with one hour spare before bed you may have numerous alternatives as to how to spend this time. You might choose to spend it doing extra economics (unlikely I know) in order to improve your chances of a good grade. This choice however, has an ______cost, which is defined as the benefit forgone of the next best alternative. The next best option might have been to study another subject to improve your chances of a good grade, or to read for relaxation or to watch TV, and so on. Not all these options are available simultaneously and a trade-off or opportunity cost exists whatever the final decision.

Now consider one of the most famous economic rules of all; there’s no such thing as a free lunch. Even if someone offers to take you out to lunch for free, with no expectation that will return the favour or make conversation during the meal, the lunch is still not entirely free. The time you spend in the restaurant still costs you something in term of forgone opportunities.

The consumption of some goods do not include an opportunity cost. For example, a person can have as much air as they like, as generally it is not scarce. Such goods are called ______goods, whereas those that involve an opportunity cost are described as ______goods. Unit 1 Basic Economic Principles

Economic Resources

Three very important questions are faced by all societies:

1. What goods and services should be produced?

2. How should these goods and services be produced?

3. For whom should these goods and services be produced?

Not only do choices need to be made at an individual level, but both ______and the ______are faced with choices. Firms need to choose which goods to produce and in what quantities, what price to charge their customers and where to locate their factory for example.

Governments on the other hand have decisions to make on whether to raise revenue through indirect or direct taxes or what rate to set the National Minimum Wage.

An economic system needs to provide answers to all the questions

Resources are required to make goods and services.

By resources the economist means the inputs used in the production of goods and services (i.e. ______of ______). They are finite (scarce) and can be classified into four categories:

1. ______, including dry land, sea and everything in it, on it or under it (e.g. coal, oil, gas)

A number of land resources can be classed as ______resources. They are resources whose stock can be maintained over a period of time. These include, solar energy, wind power, timber and water. However, renewable resources may decline over time if they are consumed at a faster rate than the environment can replenish them. If resources are exploited and not replaced, they become non-sustainable. Therefore, it requires careful management to avoid such things as deforestation and soil erosion, in order to sustain certain resources.

______resources are those whose stock level decreases over time as it is consumed. These include fossil fuels such as, coal, oil and gas, as well as commodities, such as aluminium, copper and steel. It is possible to reduce the rate of decline of non-renewable resources through recycling and the development of substitutes.

2. ______, meaning the hours that the population is willing and able to work.

Not all workers are the same. Each worker has a unique set of characteristics. The value of a worker is called his ______. Unit 1 Basic Economic Principles

3. ______, which are goods produced in order to produce other goods and services (e.g. factories, machines). Capital can be classified into two groups, working capital, which refers to the stock of raw materials or finished goods; and ______capital, which is the stock of factories, offices and machinery.

4. Enterprise, which is where individuals organise production AND take risks with their own money in order to make a profit, but with the knowledge that they could lose it all and go bankrupt. Unit 1 Basic Economic Principles

Hint Sheet

Opportunity

Unlimited

Factors

Labour

Government

Renewable

Capital

Economic

Choices

Production

Non-renewable

Capital