Topics to study:

Scarcity + Choice
Wants vs Needs
Factors of Production: Land, Labour, Capital, and Enterprise
Economic ( Either Capital or Consumer goods) vs Free goods
Opportunity cost
*The circular flow
*Interdependence

Scarcity + Choice:

What is Scarcity?
Scarcity is the lack of finite resources needed to cater to our infinite needs and wants. Because we have
limited resources, we must make choices with what those resources are used for.

Wants VS Needs:

Wants:
Wants are any resource that provides comfort or entertainment to people but is not necessary for
survival.
Examples include: Personal electronics, makeup, electricity, and soda.

Needs:
Needs are any resource that is necessary for humans to survive.
Examples include: Water, air, food, and warmth.

Factors of Production:

The four factors of production are:

● Land – Natural resources used for their original form.
● Labour – Effort/time given by people to produce something.
● Capital – Resources that are man-made in order to assist the production of something else; The
investment in the replacement of labour.
● Enterprise – Ideas and innovation from people (This is classified as a special form of labour).

Economic VS Free goods

What is an Economic good?

Economic goods are classified into two categories: Consumer and Capital goods. They have monetary
value and require a form of payment to obtain.

What is a Free good?

Free goods are goods that are abundant and do not have monetary value. An example of a free good
would be oxygen and water.

What are Capital vs Consumer goods?

Capital goods are goods that are intended to be sold for what it can contribute to. An example would be
a hammer or a whiteboard.

Consumer goods are goods that are sold for what they are. An example would be clothing or most food.

What is an Opportunity Cost?

An opportunity cost is the next best option forgone. Example: If I went to the Café with $5 and had the
option of buying a $5 muffin or a $5 sandwich, I can only choose one. If I choose the muffin, then the
opportunity cost is the sandwich.

What is Interdependence?
Interdependence is when two or more groups in an economy depend on each other to meet their needs
and wants. All sectors of an economy rely on each other to function, thrive, and survive. An example
would be households and businesses relying on each other for labour and money in exchange for the
other.

The question below is a good example of the type of longer answer question you may get in your first
Economics assessment in Week 6. Please have a go at writing your response to this question making sure
to include all of the concepts asked for. An essay is not expected here however you should be able to
respond with a paragraph of approx 100-200 words.
Please have a go at this by Wednesday (week 5) and I will do my best to post feed-back before end of the
week.

Resource material: Mitch works weekends at the local takeaway shop. The rest of his time is sent on the
following activities:
* Training for surf lifesaving
* Attending University
*Spending time with his friends

Question: Explain how time is a limited resource for Mitch. In your answer you should refer to the
resource material above and discuss:
*scarcity
*choice
*opportunity cost

In this case, we can see that Mitch has limited resources (time) as he only has a certain amount of it,
while he has unlimited wants and needs. Scarcity is when the desire for something is greater than the
amount that is available. Therefore he must make choices about the usage of the limited resources
(time). A choice must be made in relation to different uses we want to make of our means, where means
are the personal resources that we can use to satisfy our needs and wants. When Mitch makes a choice,
this means that he will be missing out on some activities, which is the opportunity cost. Opportunity cost
is the next best option foregone, e.g. training for surf lifesaving. If he chooses to go to training for
lifesaving instead, then the opportunity cost will be attending university or spending time with friends.

Circular flow model explanation in regards to interdependence

The circular flow model shows the relationship between the business and the household sector. On the
inner circle of the model, we have the real flow of goods/services for the household sector, and
labour/resources for the business sector. On the outer circle of the cycle, we have the money flow of
wage/income for the household sector, and the revenue for the business sector. An example of this
would be that the household sector receives income for the labour / land that they provided. They
would then use their wage to satisfy their needs/wants. Because of the goods/service that the business
sector provides, they in turn receive revenue, which goes towards paying for labour/resources. If one
sector is not functioning, then the circular flow would be broken. There would be no labour being
provided to the business sector, which in turns cannot provide goods/services to the
consumer/household. Therefore, neither can exist without the other.

Key things:

Give examples of everything

Refer to needs/wants
Real and money flow
Explain why they are interdependent