Scarcity and choice
- The basic economic problem: people have unlimited wants, but resources are scarce (limited). So choices must be made.
- Opportunity cost is the value of the next best alternative given up when a choice is made. If you spend £10 on a cinema ticket instead of a book, the book is the opportunity cost.
- Governments, businesses and individuals all face opportunity costs, such as a government spending on hospitals rather than schools.
Factors of production
- Land: natural resources (reward: rent). Labour: human effort (reward: wages).
- Capital: man-made resources used to produce goods, such as machines (reward: interest).
- Enterprise: the risk-taking and organising that brings the other factors together (reward: profit).
Economic agents and sectors
- Economic agents are consumers (households), producers (firms) and the government.
- The primary sector extracts raw materials (farming, fishing, mining); the secondary sector manufactures goods; the tertiary sector provides services. In Guernsey, as in the UK, most jobs are in the tertiary sector, such as finance.
Key terms
- Scarcity
- Resources being limited while wants are unlimited.
- Opportunity cost
- The value of the next best alternative given up.
- Factors of production
- Land, labour, capital and enterprise.
- Capital
- Man-made resources used in production, such as machines.
- Enterprise
- Taking risks to organise the other factors of production.
- Tertiary sector
- The part of the economy that provides services.
- Economic agents
- Consumers, producers and the government.