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com [IGCSE 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

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.
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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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