Notes on Topic 1. The first topic gives an introductory overview of the study field of Economics. Make sure that you can define the different concepts introduced in this topic. They (and the concepts we are going to introduce in the rest of the topics) form the basic building blocks of your understanding of Economics – AND your ability to “speak Economics”. In the introductory paragraphs of Topic 1, the following statement is made: “Economics is about how we make choices as individuals and as a society”. The story goes further, “we have to make choices because of scarcity”. Scarcity Scarcity is about the imbalance between the long list (unlimited) wants and needs and limited resources (the four factors of production). Thus we have to choose (make choices) and every choice we make involves opportunity cost. Opportunity cost Opportunity cost is the value to the decision-maker of the best alternative that is given up. Three key questions Societies must answer 3 key questions when addressing the scarcity problem. What goods and services to produce? - Which of the long list of wants must be produced. How to produce the goods and services? - How are the factors of production combined? For whom to produce? - Who receives what has been produced. Four Factors of production Land – rent Labour – wages Capital – interest Entrepreneurship – profit
