Scarcity

Wants: Things that one does not require to survive but for luxury (e.g., PS5).

Needs: Things that one needs to survive (e.g., food and water).

Resources: Services or other assets used to produce goods and services to meet our needs and wants

Using the above definitions, scarcity can be defined as:

“There exists only a finite number of resources but infinite number of wants”

🕵🏻‍♂️The Economic Agents🕵🏻‍♂️

Economic agents comprise of the households and firms which operate in an economy’s private sector along with the government in the public sector.

3 Questions Asked by The Agents

Private & Public Sectors

Private Sector	Public Sector
Refers to the economic activity of private individuals & firms	Refers to the economic activity directly involving the government
Profit motive (earn money for owners)	Public service (provide a service)
Samsung, Pizza Hut, and Toyota are examples of companies in the private sector	Mainly government institutions and services (like firefighters, government hospitals, etc.)

All the economic agents consume and produce goods one way or the other.

Goods & Services

Goods are physical items which can be produced, bought, and sold.

Services are non-physical items which can be provided by firms & paid by consumers.

Types of Goods

Economic goods are ones limited in supply, they are scarce in terms of demand for the good, and human effort is required to obtain the good.

Free goods are those unlimited in supply and have no opportunity cost for production or consumption.

Goods provided by the government are not considered as free goods as they have an opportunity cost (money could have been invested elsewhere).

The Basic Economic Problem

This is concerned with how well an economy can allocate scarce resources to satisfy people’s unlimited needs & wants.

Factors of Production

These are the resources needed to produce a good or service.

Factor	Definition	Reward
Land	Natural resources needed in the production process	Rent
Labour	Human resources needed in the production process (includes skilled & unskilled labour)	Wages
Capital	Manufactured resources needed in the production process	Interest
Enterprise	Skills required by a businessperson requires to combine and manage the other factors effectively	Profit

Mobility of The Factors

Geographical

This refers to the willingness and ability for a factor of production to relocate to another location.

Factor	Mobile?	Reason
Land	Nope	It is not possible to move land around (logic lol)
Labour	Yes	Workers can work everywhere (they are needed for production). There are some reasons why they are immobile (check here).
Capital	Depends	Depends on the capital. Equipment is geography mobile, but a ship dock is not.
Enterprise	Yes	A person who successfully used the factors in one country can do the same in another.

Reasons Why Labour Can Be Immobile

Family Ties:

People may not be willing to relocate as they want to stay close to their family & relatives.

There may also be things like schooling arrangements, neighbour relations, etc.

Cost of Living:

Cost of living is different in different countries.

Labourers may not be willing to go from a country with low cost of living to one with high cost of living.

Occupational

Refers to the ease at which one factor can be used for something else.

Factor	Mobile?	Reason
Land	Yes	Land can be used for various purposes.
Labour	Depends	Mainly on the cost and length of the training for the profession. People with low skills may find a hard time finding employment as opposed to highly skilled workers.
Capital	Depends	You cannot change the use of most manufactured goods. A printer will always print but there are exceptions, we can use an office block or factory for many things.
Enterprise	Yes	A person who can use the factors effectively in one industry is likely to be able to do the same in another.

Reasons For Changes in The Quality & Quantity of Factors of Production

Effect	Cause
Low Labour Demand	Increase in national minimum wage.
Increase/Decrease in price	Complying with regulations results in higher cost of production and thus, higher prices.
	Government subsidies reduce cost of production and so, lower prices.
	Better technology helps reduce cost of production leading to lower prices.
Increased Labour Quantity	Lower income taxes
Increased Labour Quantity	High labour migration into the country results with higher labour supply.
Boost in Production	Better education and healthcare results in higher quality of labour which boosts production.
Increased/Decreased Agricultural Products	Bad weather condition can cause decrease in agricultural products and vice versa.

💸Opportunity Cost💸

Opportunity cost is the cost of the next best opportunity forgone when deciding.

Example

I chose to make notes for unit 1 of economics, my opportunity cost is the notes for some other subject (like chemistry or physics maybe).

Influence on Decision Making

Agent	Reasoning
Consumers	When a consumer purchases one thing over the other, they miss out on the benefits of the other product.
Workers	Workers have a field of speciality, when they decide on the field, they give up the opportunity to persue other jobs & careers.
Producers	They must choose between different fields for investment, research, expansion, etc.
Government	If they decide to invest in education, they have less money for other fields like transportation or protection.

Production Possibility Curve (PPC)

This shows the maximum combinations of goods and services which can be produced in an economy.

A PPC diagram is the graphical representation of the maximum combination of the amounts of goods & services which can be produced in an economy.

Points on the PPC

Point	Meaning
A	All resources are used to produce product 2.
B	All resources are used to produce product 1.
C	Products 1 and 2 are produced, but more of product 2 is produced.
D	Products 1 and 2 are produced, but more of product 1 is produced.
E	Lies beyond the PPC meaning it is outside the productive capacity. This level is not attainable (yet).
F	Lies inside the PPC meaning not all resources are being used (inefficient use of resources).

Movements Along The PPC

Conditions To Be on the PPC

There are 2 conditions a country must meet to be on the PPC:

All factors are in use.
The factors are being used efficiently and are allocated for their best use.

Movement Along The PPC

This always involves an opportunity cost as we decrease production of one product to increase the production of the other.

In the diagram on the right, the point moves from X to Y, this means that we decrease production on product 2 to increase production of product 1.