Essay on Economics Resources Scarcity Production Possibilty Curve And Opportunity Cost
Economics Resources Scarcity Production Possibilty Curve And Opportunity Cost Term Papers
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There are four main types of resources available for use in production, land, labour, capitol and enterprise. These resources are scarce due to the fact that wants are unlimited. Since all wants cannot be satisfied, we have to make choices in what to buy. A production possibility curve can be used to illustrate the economic problem. With advances in technology and expanding resources, the production possibility curve will move over time.
Resources are known as factors of production and there are four of them:
1. Land, refers to all resources provided by nature for mankind's use. It includes forests, oil and mineral deposits, farmland, soil, fishing grounds and water resources. Land is not confined to its everyday usage. It means more than just a home site, a farm, or a place to build a factory. In order to be productive, however, land requires the application and assistance of the other factors. That is, before land can produce goods and services, it must be combined with labour, capital and enterprise.
2. Labour, which includes all forms of human effort used in the production process, both physical and mental. The quality of labour is determined by various factors such as the level of education and training, the ability and willingness to work, and the size of the workforce. Like land, labour is regarded as a passive factor of production. That is, labour must be organised and combined with other factors to produce goods and services.
3. Capitol, which includes all manufactured goods, which have been produced for the purpose of assisting with the production of final goods and services, also referred to as "producer goods". These include machinery, factory buildings, and computers. Capitol goods are man-made. For this reason, capital is often defined as produced means of production. Moreover, because they are used by firms in conjunction with other factors, they are sometimes called producer goods.
By this definition, money is not capitol.
The two subgroups of capitol are:
1. Social Overhead Capitol, or infrastructure, is an investment usually provided by the public sector, which enables the economy to function effectively. These include communications, transportation and the road and rail network.
2. Intermediate Capitol Goods, are goods that are produced to be a component of a final good.
4. Enterprise, or entrepreneurial ability, is the ability to organise the other factors of production for the purpose of producing and selling goods and services. The individual who possesses this ability is called the entrepreneur. An entrepreneur is one of a limited number of individuals with talent, drive and initiative who makes decisions and bears the risks involved in running the firm.
Scarcity arises because wants are unlimited, while resources used to satisfy wants are limited. Resources are insufficient to produce all the goods and services required to satisfy all the wants of the people. That is relative scarcity. Scarcity is considered a relative concept because while some societies and individuals are able to satisfy more of their wants than others, all societies and individuals suffer from relative scarcity.
The scarcity of resources in relation to wants is referred to as the economic problem, the fact that all wants are unlimited. The economic problem brings about the need for choice since all wants cannot be satisfied. To satisfy any want, something else must remain unsatisfied - this is referred to as opportunity cost (also known as real cost). In other words, opportunity cost is the actual goods and services foregone in order to satisfy a particular want. In order to maximize individual satisfaction, firms and governments must have a scale of preferences - satisfy the wants considered the most urgent first. The idea is to maximize satisfaction and minimise opportunity cost. For example, a person who has $20 may want a new shirt or book. He or she decides to buy the shirt, so the opportunity cost is the value of the book.
Production is any activity undertaken to satisfy the wants of humans. Satisfaction of wants requires people to undertake consumption. Single use goods are used up immediately when consumed, such as food, while other goods are durable and can be consumed over a period of time, for example a television. Factors of production have various uses and their use in the production of one good or service is at the expense of something else using the resources. In deciding how to use resources, we are allocating them. Efficient allocation of resources is very important for society. We can illustrate the economic problem, along with the concepts of opportunity cost and efficient resource allocation, with a production possibility curve. A production possibility curve can be used to illustrate the fact that choices...
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