Scarcity and Choice: The basic economic problem
Explain what is meant by normative and positive statements
A normative statement is a statement which cannot be supported or refuted because it is a value judgement. A positive statement is one which can be supported or refuted be evidence. For example, the sentence "The government should lower the rate of income tax because it encourages people to work harder," is a normative statement. The world should is the signifier. However, the sentence "Lowering the rate of income tax would encourage people to work harder," is a positive statement because it is a factually supportable argument.
Explain what is meant by scarcity
Scarcity is the situation that arises because people have unlimited wants in the face of limited resources. Scarcity is waht forces people to make choices.
Evaluate the implications of the 'basic economic problem'
The basic economic problem ensures that every society has to decide what to produce, how best to produce it, and for whom to produce it.
Explain what is meant by the basic 'economic problem'
The basic economic problem is that of scarcity and choice. This is because people have infinite wants in the face of limited resources, therefore decisions have to be made.
Evaluate, using examples, the problem of scarcity and the requirement to make choices.
An extreme but outlining example of the problem of scarcity and the requirement to makes choices is an article that appeared in The Times & Sunday Times. The NHS is forced to make difficult choices, because with the infinite wants of consumers in the medical world, the NHS must decide which needs are most prominent. This is because resources are scarce. The NHS had to decide whether to continue paying the cancer treatment of three people with a rare blood-cancer, or to finance the recovery of healthy people from HIV. The NHS were forced to pay for the protection of healthy people against HIV instead, so the cancer treatment stopped.
Explain what is meant by economic goods and free goods
Economic goods are resources that are scarce and tradeable (such as shoes or a banana), therefore having a degree of opportunity cost. Free goods are resources that are not scarce, are not tangeable or necessarily tradeable (such as air or the ocean).
Distinguish between economic goods and free goods
Economic goods are resources that are scarce while free goods are recourses that are not scarce
Explain what is meant by needs and wants
Needs are the minimum that is necessary for a person to survive as a human being, while wants are the desires for the consumption of goods and services. Needs would be clothing, shelter, medicine, and basic education. Wants, which people have an infinite amount of, should be phones, shoes, and makeup among infinite others.
Distinguish between 'needs' and 'wants'
Needs are what people need in order to survive as human beings in a basic lifestyle. Wants, which are infinite, are additional innececitites which are not needed for the survival of a human being.
Distinguish between normative and positive statements
Normative statements are statements of opinion, while positive statements are statements of fact that can be proven or disproven with valid evidence.
Explain the nature and role of the different factors of production as economic resources
The factors of production are the human and physical resources used in the production process. These are the inputs available to supply goods and service to the economy. These inputs are labour, capital, land, and entrepreneurship. Land includes natural resources available for production (these can be renewable or non-renewable). Labour is the human input into the production process. Entrepreneurs organize factors of production and take risks. Capital are all the goods used in the supply of other products (technology, for example).
Explain the role of economic agents: -government -firms -households
The key groups of decision makers are the government, firms, and households. Governments must make decisions regarding laws, legislation, expenditures, and taxation. Firms must make decisions on start up costs, wages, machinery, who to employ, answer the questions of location, what product to produce. The objective of all firms is to make money. Households make decisions regarding their expenditure and finite income, as consumer wants are infinite.
Explain the rewards to the factors of production
The rewards to the factors of production include Income, wealth, labour and wages. The main sources of income is labour and salaries from a job, interest from savings, dividends, and rent income. Wealth is defined as the value of a stock of assets that, in turn, creates a flow of income. This is financial wealth, marketable wealth, and social capital. Rewards: -Financial Wealth: Labour and wages are best understood as capital interest, and enterprise and profit (including the gross profit, which after tax is called the net profit). Rewards: -capital interest: The reward for investing money is interest. -enterprise and profit: Entrepreneur gets net profit.
