SECTION 1
THE BASIC ECONOMIC PROBLEM
CHAPTERS:
Chapter 1: The nature of the economic problem
Chapter 2: Factors of production
Chapter 3: Opportunity cost
Chapter 4: Production possibility curves
Chapter 1
The Nature of the Economic Problem
By the end of this chapter, you should be
able to:
• define & give examples of the economic problem
• explain the difference between economic goods &
free goods
Needs & Wants?
Answers
Economic Problem?
Economic Problem
Economic Problem
Unlimited
Wants
>
Limited
Resources
Scarcity
Economic agents
» individuals or households
» firms (businesses which operate in the private sector of the economy)
» the government.
The three basic economic questions addressed by economic agents:
1 What to produce?
2 How to produce it?
3 For whom to produce it?
Economic Agents
Private sector
● refers to economic activity of private individuals and firms.
● aim is to earn profit for its owners.
Public sector
● refers to economic activity directly involving the government, such as the
provision of state education and healthcare services.
● aim is to provide a service.
Answer
Answers
Economic Goods
•
•
Limited in supply.
Example???
Free Goods
•
•
Unlimited in supply
Example???
Answer
Economics?
Economics
�
The study of how resources are allocated to satisfy the needs
& wants of individuals, governments & firms in an economy.
a
The economic problem is that we cannot have everything we want. This shortage
arises because while there are unlimited wants, there are finite resources.
b
A car is an economic good as it takes resources to produce it. Among the
resources that are used to produce cars are, for example, machines and workers.
The amount of cars produced depends on the quantity and quality of resources
that are used. These resources could be used to produce other goods and
services.
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