BASIC ECONOMIC CONCEPTS

BASIC ECONOMIC CONCEPTS        

                                                             

Basic Economic Problem

Ø  Scarce resources and infinite wants

Ø  Resources are limited but wants are unlimited. So all human wants cannot be satisfied with available resources

Ø  It deals with economic decision regarding what to produce, how to produce and for whom to produce

Needs

Ø  The things which are necessary for survival             Eg: food, shelter etc

Wants

Ø  The things which are not necessary for survival       Eg: mobile phone, T.V etc

Scarcity

Ø  Resources are limited in supply.There is not enough goods and services to satisfy all human wants

Choice

Ø  Selection from alternatives

Opportunity cost

Ø  The next best alternative forgone when we make choice. In other words how much amount of one thing we have to be sacrificed for getting another.

Free goods

Ø  The goods which can be obtained without paying any amount of money

Ø  It is unlimited in supply, it has no opportunity cost

Economic goods

Ø  The goods which are available only by paying some amount of money

Ø  It is limited in supply, it has the opportunity cost

Consumer goods

Ø  The goods which are used to give satisfaction directly to the consumers     

 Eg: Coca- cola

Durable consumer goods

Ø  The goods which last for a long period of time            Eg: furniture, T.V etc

Non durable consumer goods

Ø  The goods which do not last for long time                   Eg: vegetables, fruits etc

Producer goods

Ø  The goods which are used in the production of other goods      Eg: Raw materials

Wealth

Ø  Stock of goods which have money value

Income

Ø  The flow of money

Production

Ø  Producing goods and services to satisfy human wants. In other words it is the transformation of inputs to output

Consumption

Ø  Using up of goods and services

Labour intensive technique of production

Ø  Using more labour and less capital for producing goods and services

Capital intensive technique of production

Ø  Using more capital and less labour for producing goods and services

Productivity

Ø  A measure of efficiency with which goods and services are produced

Factors of production

Ø  The resources of land, labour, capital and entrepreneur used to produce goods and services

Land

Ø  It includes all natural resources available on the surface of earth. It is the gift of nature   Eg: surface of earth, sea, forest, hills etc

Ø  Reward – rent

Natural resources           

Ø  It includes all resources available by nature. It is the free gift of nature

            Eg: oil, forest etc

Labour

Ø  It is the mental or physical ability of a person to produce goods and services

Ø  Reward – wages or salaries

Capital

Ø  It is the man made physical goods used for producing goods and services.    Eg: machineries, factories etc

Types of capital

Ø  Fixed capital : Consists of things which do not change in the form in the process of production

Ø  Working capital: Consists of the things which are used up in the production

Entrepreneur

Ø  The person who undertakes the risk and responsibility for employing land, labour and capital

Functions of an entrepreneur are:

a.       risk bearing

b.      decision making

c.       coordinating land, labour and capital

Investment

Ø  It means increase in real capital assets or spending money for capital assets

Stages of production or Economic Sectors

Ø  Primary sector: It is the first stage of production. It extracted raw materials from nature or by growing them

Eg: Fishing, farming, forestry, mining and quarrying

Ø  Secondary sector: It is the second stage of production. It convert raw materials to finished or semi finished goods

Eg: Industries producing steel, furniture, cloth etc

Ø  Tertiary sector: It is the third stage of production. It provide services to primary and secondary sector

Eg: Banking, transport, communication etc

Division of labour

Ø  Dividing the big production process in to small separate task and each task is performed each worker

Advantages of division of labour

Ø  Increased productivity and output, time saving, increased out put, reduced cost of production

Disadvantages of division of labour

Ø  Boredom  of work, craftsmanship lost, risk of unemployment is greater, interdependency

Specialization:

  Concentration in the production of a particular product or task. It includes  

  regional, national, international and specialization by firms and industry. It will

  improve efficiency.

Resources:  The things which are used for producing goods and services. It includes human

                     resources, natural resources, manufactured resources

v Exploitation versus Conservation of resources

Exploitation and conservation both has costs and benefits too. Using the economic resources is exploiting and not using can be regarded as conserving. Country should use resources efficiently to satisfy their wants and needs. If a country using the resources, it helps to increase in production, output and income of the country. It will leads to economic growth.

If a country using the resources, it will leads to an increase in production and employment. Then country can achieve full employment. When a country using their resources, production, out put and export will increase, there by country will get more amount of foreign currency and balance of payment surplus. When a country exploiting the resources, production and out put will increase, it provides goods and services at a lower price and higher standard of living. Finally the exploitation of resources will leads to production, there by average cost will decrease, then country can achieve economies of scale.

                             However country should protect some resources for future generation, should not waste any units of resources. Country can use more renewable resources rather than non renewable resources. For example instead of oil, there is an invention of solar energy.

      Conclusion

In my opinion, using up of resources is advantageous because it bring economic growth, full employment, higher standard of living, and more foreign currency but country should protect some resources for future generation.