The Basic Economic Problem

The basic economic problem

Chapter-1

Can you spot any similarity between the 2 pictures?

Any differencesCould the woman be wanting

anything?Could the man in the picture be

wanting something?

Scarcity

• Scarcity is a situation where there is not enough to satisfy everyone’s wants.

• Example- Almost 6 million people in India live in slums who would like to improve their life style by ensuring basics but those who are living in rich suburbs would like to improve their living accommodation may be by adding a swimming pool!

• Conclusion- rich or poor everybody faces scarcity.

Characteristics of scarcity1. It is relative concept.2. It is a universal phenomenon as

there are never enough resources to satisfy everybody’s wants or in other words the economic problem of scarcity arises because wants exceed resources.

What is an economic problem?

• Resources are scarce• Wants are unlimited• Scarce resources have

alternative uses.

Resources are limited but what is a resource?

In the following picture which one is a resource?

What is a resource?

• Scarce materials are called resources.

• However, in Economics, Factors of production are known as resources.

Factors of production

• Factors of production are the economic resources of Capital, enterprise, labour and land.

• There are three main factors of production and enterprise is a special form of labour.

Factors of production

Land- All the resources provided by nature are refered to as land in Economics.

Characteristics' of land-• Supply of physical land is limited

though supply of other natural resources can change.

• Land is geographically immobile but occupationally mobile.

Land

Capital

• Man made goods used in the process of production are known as capital.

• Characteristics of capital1. Supply of capital increases with

time if an economy is growing.2. Spending on capital goods is

known as investment.

Capital

Labour

• Labour covers all human efforts –both mental and physical involved in producing goods and services.

• In other words Labour is the human input in the production process.

Both are considered Labour in economics Is there any difference?

Yes When humans are trained and qualified they are said to have human capital. The more human capital they have, more they are capable of producing.

Think and write

• How does your human capital differ from your teacher’s human capital?

• Is there a difference between the human capital of a cleaner and that of a doctor?

Factors of productionEnterprise

• Enterprise is the willingness and ability to bear uncertain risks and to make decisions.

• Entrepreneurs are the people who organize the other factors of production.

Characteristics of enterprise

1. The two key tasks of an entrepreneur can be carried out by different people.

2. In large companies, it is the shareholders who run the risk of losing their money.

Enterprise and entrepreneur

Difference between a resource and free good

• Scarce materials are called resources.

• Free goods are those resources that are not scarce for example fresh air or sunlight.

Difference between need and want

• Needs are limited as need are the things necessary for survival.

• Want is a desire and human nature is such that desires are unending.

Opportunity Cost

The real cost of choosing one thing and not another is known as the opportunity cost.

Exercise-7

Does the freedom to choose exist for all?

Choice-a conflict of interests

Exercise -9Any town conflict-a case study

Thank you!