Unit 1_Scarcity,Choices and Resource Allocation

Unit 1_Scarcity,Choices and Resource Allocation - UNIT 1...

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UNIT 1: Scarcity, Choice and Resource Allocation Introduction Economics is a subject that people must confront in their everyday lives. People already spend a great deal of their time thinking about economic issues such as: prices, buying decisions, use of their time, to name a few. The word “economics” comes from the Greek word oikonomikos meaning “one who manages a household.” What is Economics? The fundamental economic problem is: the scarcity of all resources both renewable and non- renewable. Scarcity is the condition where the wants of individuals and societies are greater than the limited resources available to satisfy them. General definition: The science of how individuals and societies deal with the fact that wants are greater than the limited resources available to satisfy those wants. Resources Resources are the elements which an individual, organization, company or country use to provide for their wants and needs, normally categorized as: (i) Natural resources or endowments , that is those elements in our environment which we human beings are endowed with and which we make use of, but whose creation did not involve any effort on our part. (ii) Human resources , which refers to the capabilities that we have, both mental and physical. (iii) Manufactured aids to production , such as tools, machinery and buildings. Economists also refer to these resources as factors of production: land, labour and capital. Land: Often, when this term is used as one of the factors of production, it encompasses not only land but all the other natural resources: air, sea, trees, minerals and so on. Given this wide scope, some economists prefer to retain the broader term natural resources . Labour: This term carries the same meaning as human resources, as described above. It is important to note that its use covers both the physical and mental, unlike its usage in everyday speech, where labour is normally associated with physical activity. Capital: This term refers to the stock of material assets that are produced and accumulated by a society to facilitate further production. It can also be described as anything that is produced, to be used subsequently for the production of goods and services. 1
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Any resource is capital if it satisfies two (2) criteria: 1. The resource must have been produced. 2. The resource can be used to produce other goods and services All three factors of production are the inputs which combine to produce the outputs that people require to satisfy their needs. Outputs may be of two forms: There are the tangible items (that can be touched), known as goods , and the intangible items (that cannot be touched) known as services. Examples of goods are bed, stove, motor car; examples of services are hairdressing services, insurance services, education. Outputs or Inputs?
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Unit 1_Scarcity,Choices and Resource Allocation - UNIT 1...

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