1.1.1 The economic problem

1. The central economic problem facing all societies is scarcity.
2. Individual, businesses and governoments all have unlimited wants
   1. But only limited or finite resources with which to satisfy those wants
3. Resourcses are limited in the physical amount available and also limited in use

   Annotations:

   • mostly they are used for one thing ate a time 
   1. This means we have make choices between our competting wants and decide how we use our scarce resources

      Annotations:

      • we will buy the products that create the most satisfaction obtainable from the amount of money we spend
4. A free market economy
   1. This is where there is no interefearnce from outside agencies, such as the governoment
   2. The market force of demand and suppy interact, operating freely to determine the allocation of resources
      1. The allocation of resources is the process in which factors of production and raw materials are used in the production of good and services in demand
   3. In reality, comletely free market economies do not exist

Annotations:

• This links to opportunity cost, because opportunity cost is a key consideration when making decisions

1. The decision been made between two on more alternatives
2. Example: You might have to decide what to do with your time, whether to stay in and study or hand out with your friends
3. Ultimately, resources are scarce so consumers, businesses and the government must decide which of the possible alternatives are most desirable
   1. This is because individuals, businesses and the government never have all the funds they would need to buy everything tthey want.

1. Opportunity cost is the cost of the next best alternative that has been forgone or sacrificed
2. This links to choice because once a choice has been made, the alternative has been sacrificed and that will be the opportunity cost
3. Example
   1. The opportunity cost of a business buying a new delivery van may be the new computer system that they have had to forgo

1. This is a situation where having more of one thing leads to having less of another
2. This is linked to the concept of opportunity cost
   1. We often think about opportunity cost in an either/or situation, where we must choose one thing over another. However, a trade off involves a more gradual lessening of one variable in order to get more of another
3. Stakeholders facing trade-offs
   1. Consumers- may take a cheaper holiday in order to buy more clothes
   2. Businesses- The trade-off might be between money spent on developing new products and money spent promoting existing ones
   3. Governments-whenever they consider costly policies. Spending more on road building may mean spending less on healthcare