Basic terms, basic problem in Economics

1. ECONOMICS
THE BASIC ECONOMIC PROBLEM

2. RECAP
• In our previous lesson we learnt some definitions and
scope of Economics. I am sure you are clear on those
topics. Should you have any difficulty get back to me.
• Now we are going to look at ‘the Economic Problem’.

3. OBJECTIVES
• Realize that people’s wants for goods and services are unlimited.
• Understand that resources used to make goods and services are scarce.
• Distinguish between a need and a want.
• Understand the use of advertising to persuade people to buy goods and services, that is, to create
wants.
• Explain why scarcity of resources leads to choice.
• Evaluate the real or opportunity cost of choice.
• Understand that economics involves trying to increase people’s choice.
• Recognize that conflicts of interest are caused by scarcity on a local, national and international scale.
• Analyze the economic dimensions of a problem.

6. CRITICAL THINKING (ACTIVITY 1)
• What do you understand from slide 3 and 4, write down in 5-6 lines in a word document and email as
an attachment.

7. SOME BASIC TERMS (read the terms below, copy them in your notebook as a ready reference)
• SCARCE: limited availability of goods, products, mainly natural resources.
• RESOURCES: inputs used to productive activity and products. Resources are important because they
are used to make goods and provide services.
• Goods and Services: are outputs from productive activity.
• Need: something that is necessary to move on.
• Wants: Something that is not essential or mandatory.
• Choice: Scarcity of resources leads to choice. Choice is something one picks from options available.
• Opportunity cost: The benefit of the next best alternative foregone is the opportunity cost of that
decision.
• Producers: The people who make and sell goods and services are known as producers.
• Factors of production: Scarce resources used up in the production of goods and services to satisfy our
wants are known as factors of production. They are classified as land, labor, enterprise, and capital.
• Unit: Economists tend to talk of unit of factors of production. Units of capital could be number of
machines, units of labor could be number of hours or employees, units of land could be tones of
coal, minerals.

8. MEMORIZE : ACTIVITY II
• Try to memorize the terms you have just read. You will be having as assignment based on these terms.
• Go to the link below and carry out activities like Flash card, learn, test, scatter, and race. Take a print
shot of every record sheet and email me.
• http://quizlet.com/47838405/basic-terms-in-economics-flash-cards/

9. HOW RESOURCES ARE CLASSIFIED?
Economists group together different factors of production under four main headings.
1. Land: Land includes the seas and rivers of the world, forests and deserts, all manner of
minerals from the ground, chemicals and gases from the air and the earth’s crust. Fertile
land or animals, water bodies or minerals … all these factors are categorized under term
Land.
2. Labor: People provide the physical and mental effort to make goods and services.
People who work with their hands and use their brains to help make goods and services
provide Human resources or Labor. The size and ability of labor determines the quality
and quantity of goods and services.
3. Enterprise: A firm is an organization that own as factory or a number of factories,
offices or perhaps even shops, where goods and services are produced are called
enterprise. The people with enterprise that can control these firms are entrepreneurs.
4. Capital: The man-made resources which help to produce many other goods and services
are known as capital.

10. ACTIVITY III
1. Classify the scarce resources that are used to produce cartons of orange juice.
Draw three columns and label them natural resources/Land, human resources/
Labor, man-made resources/ capital.
Telephones, advertising people, cotton for clothing, fertile soil, squeezing machines,
orange pickers, package designers, calculators, water, oil, lorries, printing machines
orange trees, bank clerks, power stations, coal, warehouse workers lorry drivers,
shops, ship’s crew, factory buildings, insecticide sprays, oranges, roads, accountants,
shop assistants, wood.
2. Produce a list of resources you think are used to produce cars. Sort it the way you
did above.

11. THE SATISFACTION OF HUMAN WANTS
• Free goods: Any resources that are not scarce are called free goods. Eg. Air, solar energy.
• Needs and wants: Everyone has similar basic needs. Food, water, air, clothing, and shelter are the basic
needs everyone has. However, people usually want far more than they need.
• Goods and services are the outputs or products of productive activity using scarce resources. We must
use up goods and services or products to satisfy our needs and wants. This is called consumption.

12. CLOSURE: PROBLEMS SITED SO FAR…………..
• Problem 1: Resources are scarce.
• Problem 2: Human wants are unlimited.
• Problem 3: Scarce resources have alternative use.
• Problem 4: We must choose which wants to satisfy.

13. REFERENCE
• Moynihan, D. & Titley, B. (2000). Economics: A complete course, Oxford Press.