Unit 1: The

Basic Economic
Problem
 Contents of This Unit
● The Basic Economic Problem
○ The Nature of The Economic Problem (Recap)
○ Factors of Production
○ Opportunity Cost
○ Production Possibility Curves
 Recap The nature of the Economic
Problem
The Economic
Economy Resources Problem
01 The system of trade 02 Factors used to
produce goods and
03 Unlimited wants
(mine and yours)
and industry by
which the wealth of services exceeding finite
a country is made (limited) resources
and used

Scarcity Economic Goods Free Goods

04 A situation where 05 Vast majority of 06 Free Goods are rare.
there is not enough goods and services They are goods that
to satisfy everyone’s are economic require no resources
wants goods. They require to make.
resources to
produce them and
are limited in
supply.
Factors of
Production
Consider what resources will be
required for the following items. In
Groups make a list.
 Rice

List the resources required to

produce rice
 Bed
For Julia, everyone list the
required resources for Julia’s
favourite place!
 Iphone 12

List the resources required to

produce an iphone
 You’re about to
watch a Video
Write down brief definitions for
each factor of production.
Factors of Production
 Factors of Production
How are scarce resources turned into goods
and services?

Land Labour

This general term includes not only land Manual and skilled labour make up the
itself but all of the renewable and workforce of a business.
non-renewable resources of nature,
such as coal, crude oil and timber.

Capital Enterprise

This is not just the finance(money)
needed to set up a business and pay for
its continuing operations, but also all of
the man-made resources used in
production. These include capital goods,
such as computers, machines, factories,
offices and vehicles.
This is the driving force, provided by
risk-taking individuals, that combines
the other factors of production into a
unit capable of producing goods and
services. It provides a managing,
decision-making and coordinating role.
 Factors of Production
Let’s match these to the correct factor of
production

Land Labour Capital Enterprise

 What About Resources we Can’t See?

Define the following in your own words:

Rent - A tenants regular payment to a
landlord for use of property or land.

Interest - The monetary charge for the

privilege of borrowing
money
A fixed regular payment, typically paid on a daily or
weekly basis, made by an employer to an employee,
Wages -
especially to a manual or unskilled worker
A financial gain, especially the difference
Profit - between the amount earned and the amount
spent in buying, operating, or producing
something
 Mobility of the Factors of Production - Land

● Occupationaly Mobile - Can be used for a number of purposes

● Traditionally Geographically Immobile - Not possible to move a section of land e.g.

Seoul to Hanoi. Some forms of land, in its wider meaning can be moved.. Can you tell
me one?

River

River’s can be diverted and wildlife can be

moved.
Occupationally Mobile or Geographically
Immobile?

Is it occupationally mobile or geographically immobile?

 Mobility of the Factors of Production - Labour

The mobility of labour varies. Some workers may find it difficult to move from one
area of the country to another, or from one country to another (geographical
immobility). Or even one job to another (occupational immobility).
Imagine you are 30 years old, like Mr. Oliver and you have a family, what might stop
you moving to a new city or country?
● Differences in the price and availability of housing in different areas and countries.

● Family Ties - People may be reluctant to leave the country they are living in due to
friends and family

● Differences in educational systems in those cities or countries

● Lack of Information - If unaware of the opportunities at new job, they may be

reluctant to try something new

● Restrictions of the movement on workers - Visas and Work Permits needed

 Mobility of the Factors of Production Land and
Labour

Main cause of occupational

immobility is a lack of appropriate
skills and qualifications.

Occupationally mobile - Capable of

changing use
Geographically Immobile - Incapable
of moving from one location to
another
Mobility of Labour - The ability of
labour to change where it works or in
which occupation
 Mobility of the Factors of Production - Capital

Geographical and occupational mobility of capital varies according to the type of

capital goods (the resources we use to create goods and services, e.g. tractor on
farm, or computer in an office)

Is this capital good

mobile?

Are they
occupationally
mobile? Can we
change it’s purpose?

Geographically
Geographically No they were made Immobile
mobile. for one purpose.
 Mobility of the Factors of Production -
Capital

But what about this capital good? Is

it occupationally mobile?

Voila this delivery van has become a

mobile coffee shop.
 Mobility of the Factors of Production -
Capital

Mobility of Capital - The ability to

change where the capital is used or
in which occupation
 Mobility of the Factors of Production -
Enterprise
Elon
Musk
What do we call these people who founded
bear the risks and makes key Tesla,
decisions in a business? Paypal
and
Space-X
Entrepreneurs

Mark
Zuckerberg
Beyonce started as a singer in a founded
girl group, now a fashion icon Facebook
selling products and owns a
management business for
talented artists
 Mobility of the Factors of Production -
Enterprise
Enterprise moves when the people
who carry out the functions move.
These people are called
Entrepreneurs.
Therefore the mobility of enterprise
depends on the mobility of who?
Entrepreneurs
Enterprise is the most mobile factor
of production.
The skills involved can be applied to
every industry.
So is Enterprise occupationally
mobile?
Yes!
Is it geographically mobile?
Ye Boiii! - Entrepreneurs
who have been successful
in starting up and running
a business can take that
around the world!
 Homework

Nice and easy, to be completed by Friday 10th September. Remember all marks go
towards your final scores this term.
 Quantity and Quality of the Factors of
Production
Renewable Resources Non-Renewable Resources

Geothermal
Energy

Wave Energy

Gold
Wind Energy

Nuclear Oil
Energy
Coal Solar Energy
 Quantity and Quality of the Factors of
Production
Renewable Resources Non-Renewable Resources

Wave Energy
Nuclear
Wind Energy Energy Gold

Geothermal
Energy
Solar Energy Oil Coal
 The Quantity of Land

Non-renewable or renewable,
However! We are losing Land with
which decrease the quantity of the
regards to non-renewable resources,
Land factor of production?
Can you name this factor of
Other than soil erosion, the production?
quantity of physical land doesn’t
change much over time…..

And Land reclamation often How about

counters this. renewable
resources? Can
we overuse
them?
Yes we can, fishing and hunting
wildlife. Once a renewable
resource, it is becoming
‘non-renewable!
 The Quality of Land

How can we improve the quality of land?

Fertilizers improve the fertility of the land.

What can happen to rivers?

Pollution - How does this

affect the renewable
resources in the river, and
therefore the quality of
land?
 Quantity of Labour AKA Labour Force

Two factors affect the quantity of labour. The numbers of workers available and secondly
the number of hours of which they work.
Number of Workers Available

How might these factors affect the numbers of workers available? Discuss with your partner.

The Size of the Population
The larger the population,
the more workers there
are likely to be.
The School Leaving Age
Attitude to Working Women
Raising school leaving
age would reduce the
number of workers.
The Retirement Age The Age Structure of the
Population - Working Age
The higher the retirement
age, the more potential A country with a high proportion of
workers there will be. people of working age will have more
workers than a country with the same
population but a different working age.
Countries where it is acceptable for women to
work have more workers to draw on.
 Quantity of Labour AKA Labour Force
The Number of Hours People Work

Number of hours worked is influenced by (among other factors)

Length of Average Working Hours Full time or Part-Time

Differs per country.
The Length of Overtime
How much overtime workers
take.
Part-time is often a
contracted amount of
fewer hours. Who may
choose part-time
Duration of Overtime
The Amount of Time Off
Different countries
Through Sickness and Illness
and businesses have
legal minimum
holiday days
 The Quality of Labour

As with the Factors of Production, it is not just the quantity (how much) but also the
quality.

Do you think the same amount of work can be completed with less workers, if those
workers are more highly skilled and better trained?
YES!
An increase in productivity, including labour productivity, is a major cause of a
country’s output (How many goods and services can be produced).

Key Terms
Labour Productivity: Output per worker hour.
Labour-Force: People in work and those
actively seeking work.
Goods and services
Productivity: The output per factor of Output produced by the factors of
production in an hour.
production.
 The Quality of Labour

Which of these factors can Better Education- Better educated

imrpove the quality of labour? Labour Force can carry out more
difficult tasks.

a) Improved Education and

Training Better Trained- Better trained Labour
b) Better equipment Force can carry out more difficult tasks,
c) Worse Working Conditions and work with more complex machinery
and equipment.

Better Healthcare- A healthier Labour

Force will be able to concentrate more,
be stronger for manual tasks and have
few days off sick.
 The Quantity of Capital
Key Terms

Net Investment: Gross investment minus

Investment: Spending on capital goods
depreciation

Negative net investment: Reduction in

Gross Investment: Total spending on the number of capital goods caused by
capital goods some obsolete and worn out capital goods
not being replaced
Depreciation (Capital Consumption): The
value of capital goods that have worn out
A B
or become obsolete

Which computer, A or
B is obsolete in 2021?
 The Quantity of Capital
The quantity of capital is influenced by
Investment and tends to increase with
time.
Every year some capital goods, become
worn out or obsolete.
Can you name some capital goods that
may become ‘worn out’ each year?
New capital goods take the place of
these worn out goods.
The total value of the output of capital
goods (what is used to produce other
goods and services) is referred to as
Gross Investment.
New capital goods produced will
replace capital goods that are old and
worn out. The value of these worn out
goods is called Depreciation.
 The Quantity of Capital
Net Investment: Is the value of the
extra capital goods made. It is equal to Occasionally Gross investment may
gross investment minus be lower than depreciation. This
depreciation. means that some of the capital goods
taken out of use, are not replaced.
For example, If a country produces
$200 million capital goods one year This is Negative Net Investment .
and there is a depreciation of $70
million, how much is net investment?
$130 million
New capital goods take the place of
these worn out goods. TIP- Don’t confuse money and
capital, finance is a form of
The country has more capital goods! What will capital. However, when
happen if this country has more capital goods? economists refer to the capital
Will it produce more goods and services? they’re referring to human
made-goods primarily.
Yes these additional capital goods will allow it
to produce more goods and services!
 The Quality of Capital
Advances in technology enable capital
goods to produce a higher output and a
better quality output!

Can you think of an example where

you can see this?

Look at robotics in car production.

They have significantly increased
the number of cars produced.

In groups discuss how advances in

technology have changed:
a. Student’s learning experience
b. People’s medical care
c. Food Production
 The Quantity of Enterprise
The quantity of Enterprise will
increase if there are more? Better Education Encourage the study of
System Business and
Economics
Entrepreneurs. Lower Regulation
to encourage
people to start
How can a government try to their own
increase the number of business
entrepreneurs?
 The Quality of Enterprise

Find an entrepreneur online and

● Better Education see if they had a degree from a
● Better Healthcare University and what their degree
● More Experience was in.
● Better Training
Payments are made
for the use of factors
of production. E.G.
Firms pay wage for
the services of their
workers.
Entrepreneurs bear
uncertain risks and
organise the other
factors for profit.
 Factors of Production Summary
● The factors of production are land,
labour, capital and enterprise
● Land is a term covering all natural
resources
● Some natural resources are renewable
whereas others are non-renewable
● The factors of production are land,
labour, capital and enterprise
● Whilst most land is occupationally
mobile, land in its traditional meaning
is geographically immobile
● Labour involves the mental and
physical effort workers put into
producing goods and services
● The quantity of labour is influenced by
the size and age structure of a
population.
● The quantity of labour is influenced by
the number of workers and the
number of hours they work
● The size of the labour force is
influenced by the size and age
structure .
● The quality and occupational mobility
of labour can be increased by better
education and training
● The geographical immobility of labour
may be caused by lack of housing and
information about job vacancies ,
family ties and need to gain visas
 Factors of Production Summary
● Capital goods are used to make other
goods and services
● Net investment increase a country’s
stock of capital goods
● Enterprise involves taking risks and
making production decisions
● Improved education lower taxes and
less regulation can encourage
enterprise
● Successful entrepreneurs tend to be
occupationally and geographically Now for an end of unit test and move on to
mobile Unit 3 Opportunity Cost!
 End of Unit Test Factors of Production

Remember this goes towards your final grade for the year. On Monday we will complete
our end of chapter test. The test is out of 16 marks and is a Cambridge past paper. 22
minutes. Good luck!
Now moving on to Opportunity Cost.