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www.fetsystem.com [GCSE ECONOMICS SECTION 1 REVISION NOTES

Nature of the economic problem

The fundamental economic problem arises due to scarcity
Scarcity is when there are insufficient resources to satisfy everyone’s wants and
needs
Finite resources and unlimited wants

Factors of Production
Land
Labor
Capital
Enterprise

Land
Natural occurring resources used for production purpose

Examples:
• Earth on which mills are built
• Water in which fish is found
• Raw materials used to produce goods

Labour
Manual and mental effort to produce or deliver goods and services
People who are willing or able to work are known as labour work force.

Examples:
• Clerks
• Computer technician
• level Economics Teacher

Capital
Manmade goods to produce other goods and services
Capital is classified into capital goods and consumer goods

Examples:
• Machines
• Factories
• Roads
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www.fetsystem.com [GCSE ECONOMICS SECTION 1 REVISION NOTES

Enterprise
The people who bring the other 3 factors of production together to produce
goods and services are called entrepreneur. In this process they do the decision
making and risk taking.

Opportunity cost
The next best alternative foregone when a choice is made
Opportunity cost is never in money value
Opportunity cost is the benefits which could have been received by taking an
alternative action.

Circumstances where opportunity cost is present

Opportunity cost and consumers
Opportunity cost and workers
Opportunity cost and producers
Opportunity cost and government

Situations
Ali can buy a ball or a pen. He decides to buy the pen. The opportunity cost of
buying the pen is ball.
Rahul can buy a 1 cd or a burger meal. He decides to buy 1 cd. The opportunity
cost of buying 1 cd is burger meal

Situations
The government of china can either spend $2 million on roads or computer
technology. It decides on spending on roads. The opportunity cost of the building
the road is computer technology

Production possibility curve (PPC)

It is a graph that shows the different rates of production of two goods and/or
services that an economy can produce efficiently during a specified period of
time with a limited quantity of productive resources

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