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THE BASIC ECONOMIC PROBLEM

 THE BASIC ECONOMIC PROBLEM

1. The economic problem: It is due to scarcity that there exists a basic economic problem of not being able to satisfy the want's of all people.

2. The economic problem can never be solved because the economic problem is scarcity. As we know the wants are infinite but resources are limited. The wants exceed resources as wants grow faster than resources 

NATURE OF THE BASIC ECONOMIC PROBLEM

At any given point of time in an economy, output is limited by the resources and the technology available. There is therefore a basic condition of scarcity. On the other hand, the wants of the consumers are infinite or unlimited and the ability of the resources to satisfy those wants however are limited. There is therefore a need to make a choice as a result of this scarcity. This choice will be in terms of what to produce, how to produce and for whom to produce.

1. Economic good: An economic good has a benefit to the society. It  is a consumable good that is useful to people but  at the same time scarce in relation to its demand. Also economic goods have a price. Human effort is required to obtain economic goods. Economic goods come with an opportunity cost. Examples of economic goods include: Piped gas,, electricity, cars, mobiles etc.

2. Free good: It is a product that does not require any resources to make it and so does not have an opportunity cost. Example of free goods are: air, water, wind etc.

TOPIC 2 FACTORS OF PRODUCTION AND THEIR REWARDS

  FACTORS OF PRODUCTION AND THEIR REWARDS

The economic resources of land, labour, capital and enterprise are called as the factors of production.

1. Land: It refers to all the natural resources used in the production such as oil, coal etc. In addition, the water, plants, animals etc are also included. Example: Farmland, minerals, sea. Land resources are the raw materials in the production process. These resources can be renewable, such as forests, or nonrenewable such as oil or natural gas.Land gives us rent

2. Labour: Labour stands for the human effort (mental or physical) that is used in producing goods and services. Example: A teacher, workers. Infact all people with their efforts , abilities and skills are termed as labour, labour gives us wages

3. Capital: Capital refers to all the human made (man-made) goods used in production. Example: Machinery and equipment, factories, conveyor belts, computers, delivery vans etc. Capital gives us interest.

4. Enterprise: It refers to the risk bearing and the key decision-making function in a business. This is needed as some events cannot be anticipated beforehand and might not qualify for being insured. Example: An entrepreneur. Enterprise gives us profit

 

Some board[ 4 m ]questions Define enterprise

Enterprise is a factor that takes the risk in bringing the other factors together or combining the other factors in order  to produce goods and services to make profits . Enterprise involves the taking of decisions in terms of what to produce and how to produce. Enterprise is taken by entrepreneurs example shareholders who receive profit as reward

Using examples, define the factor of production capital

Capital can be defined as any human-made good that is used to produce other goods and services; that is they are aids to production. Examples of capital are factories, machinery, tools, equipments etc.

MOBILITY OF FACTORS OF PRODUCTION

MOBILITY OF FACTORS OF PRODUCTION

MOBILITY OF FACTORS OF PRODUCTION  IS AFFECTED BY THE FOLLOWING :

1.Difference in the price and the availability of housing in different areas and countries

2. Family ties

3. Difference in the educational system in different ares and countries

4. Restrictions on the movement of workers

5.Lack of information

FUNCTIONS OF MONEY:

Following are the functions of money

1. Acts as a medium of exchange

2. It is a standard of deferred payments

3. It is a nit of account

4. It is a store of value

FACTORS AFFECTING DEMAND OF A PRODUCT

FACTORS AFFECTING DEMAND OF A PRODUCT:

The following factors affect the demand of a product:

1. The price of the product

2. Changes in income

3. Price of substitute goods/services

4. Price of complementary goods/services

5.Changes in income

6.Changes in tastes and preferences of customers

 

 

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FACTORS AFFECTING BORROWING

Factors affecting borrowing:

1.Availability of loans and overdrafts

2. Rate of interest

3. Confidence

4. Social attitudes