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Nature and Purpose of Economic Activity Economic resources Economic objectives of:
Individuals Firms Governments
Economic Resources
Key resources that businesses use are:
Land Labour Capital Enterprise
Land refers to all naturally occurring resources used to produce goods and services Labour is the measure of work done by humans to produce goods and services Capital is the money or wealth used to create goods and services Enterprise refers to the entrepreneurial skills and abilities that allow risks to be taken and profits to be earned
Economic Objectives
Economic objectives are the targets that are set by individuals / firms / governments to achieve All bodies pursue maximising objectives which aim to get the most out of what they do Firms are regarded as profit maximisers who attempt to maximise shareholder value and generate funds to support growth
Individuals Firms Governments
Opportunity cost
When making these decisions it is important for firms to assess the opportunity cost of their decisions Opportunity cost is the cost of the next best alternative
Value Judgements
Economists often make a number of judgements these can be:
Positive statements these are supported by facts Normative statements these contain a value judgement which can not be supported by facts
Normative statements describe what the economy should look like Normative economics looks at the desirability of certain parts of the economy
Summary
The main purpose of economic activity is to provide goods and services to meet needs and wants The four key economic resources are land, labour, capital and enterprise Individuals, firms and governments seeks to maximise economic benefits Firms seek to maximise their profits The government has four key economic objectives: to have full employment, stable prices, high and sustainable economic growth and a balance of payments equilibrium All resources are scarce and therefore there needs to be choices about how they are utilised Opportunity cost is the cost of the next best alternative Production possibility frontiers show the range of possible combinations of goods in an economy, they allow you to assess the trade offs between the production of different goods Value judgements are the basis of normative economics and they look at what should happen