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    Dawood Muzaffer
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    The economic problem refers to how societies with limited resources must decide: what to produce, how to produce it, and for whom to produce it. There is a difference between needs like food which are essential versus wants like designer clothes which are optional. Limited resources mean societies must choose between alternatives and incur an opportunity cost by forgoing the next best option. The four factors of production - land, labor, capital and entrepreneurship - must be allocated efficiently through specialization and adding value to maximize profits from scarce resources.

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    The economic problem refers to how societies with limited resources must decide: what to produce, how to produce it, and for whom to produce it. There is a difference between needs like food which are essential versus wants like designer clothes which are optional. Limited resources mean societies must choose between alternatives and incur an opportunity cost by forgoing the next best option. The four factors of production - land, labor, capital and entrepreneurship - must be allocated efficiently through specialization and adding value to maximize profits from scarce resources.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    5 views1 page

    Chapter 1 KO

    Uploaded by

    Dawood Muzaffer
    The economic problem refers to how societies with limited resources must decide: what to produce, how to produce it, and for whom to produce it. There is a difference between needs like food which are essential versus wants like designer clothes which are optional. Limited resources mean societies must choose between alternatives and incur an opportunity cost by forgoing the next best option. The four factors of production - land, labor, capital and entrepreneurship - must be allocated efficiently through specialization and adding value to maximize profits from scarce resources.

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    © All Rights Reserved
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    IGCSE Business Studies / Unit 1: Understanding business activity / Chapter 1: Business activity

    THE ECONOMIC PROBLEM


    What is the economic problem? How to produce, what to produce and for who it should be produced to

    What is the difference between needs and wants? How does limited resources lead to having to Key terms
    choices? Needs
    A need is something that is essential. And a want is something
    optional. E.g Food is a need and having designer clothes is a How to save the resources and use it to get as much profit as
    want. possible
    Wants

    Factors of production

    What are the 4 factors of production? – List and describe What does opportunity cost mean? Scarcity

    Land The next best opportunity given up by your choice


    Labour
    Opportunity cost
    Capital
    Entrepreneurship

    Specialisation

    Added value

    What is the meaning of ‘added value’? Explain by using an example.

    The selling price of a donut could be $5 but the actual cost of the donut is $2

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