Needs

• esseential goods or services necessary for living

• satisfy the basic things for life

Wants

• Non-essential goods and services that people would like to have

• Interests, tastes & hobbies

• Wants are unlimited

Factors of production = C.E.L.L

Capital - All finance, machinery & equipemnent required for manufacturing goods

Enterprise - All the people that have skills & those who have risk-taking abilities

Land - All of the natural resources provided by nature

Labour - All workers’ efforts to make products

The real economic problem

• The shortage of goods and services - we are not able to have everything

• Too few factors of production

• limited supplies

Unlimited wants + limited resources = scarcity

Limited resources = making choices is necessary, this leads to opportunity cost

What is opportunity cost ?

Opportunity cost is the sacrifice made of the second best option when making a choice or a decision.

Specialization

• Occurs when people and businesses concentrate on what they are best at

• Specialization - Divisions of labor in the production process - different tasks split up to workers

Specialization is very common because:

1. Specialized machinery & technology are now widely available

2. Increasing competition - therefore businesses need to keep costs low

3. Higher living standards can result from being specialized

Advantages of specialization

• specialized task training - increasing productivity (out put per worker)

• increases efficiency

• increases output

• save time - from moving people from different stages of production

Disadvantages of specialization

• Bored workers from doing the same job

• possible drops in efficiency

• production stopped due to absence

Aim of a Business

Businesses combine scarce factors of production and employ people to make products (goods or services) which satisfy people’s wants

• Monopoly = the exclusive possession or control of the supply & services

• Added Value = selling prices - cost of components (or materials)

  If value is not added then other costs can’t be paid for & no profit will be made

• Mixed economy = consists of both private sector and public sector