Economics Lecture 1: The Economic Problem

The Economic Problem

• The fundamental economic problem is scarcity, which means unlimited human wants exceed limited resources.
• Scarcity leads to choice-making and decision-making between various alternatives.

Economy

• An economy is a location where economic activity takes place, involving consumers, producers, government, and the international sector.

Subsistence Economy

• Early humans relied on nature to satisfy their primary needs of food, shelter, and clothing.
• This system was based on direct production, where people provided for themselves.

Division of Labour and Specialisation

• Nomadic people settled and began to specialise in different tasks, leading to specialisation.
• Specialisation can occur in 6 ways:
  • By Product (e.g., fish farming, poultry, cattle)
  • By Process (e.g., oil extraction, refining, by-products)
  • By Firm (e.g., Microsoft, Google)
  • By Industry (e.g., tourism, transportation, agriculture, extractive)
  • By Region (e.g., northern region of Trinidad for chive)
  • By Nation (e.g., Trinidad's oil, Switzerland's chocolates, Germany's automobiles)

Advantages of Specialisation

• Less time is required to train a person performing one job.
• Tools are less expensive due to simpler jobs.
• Output or production is increased due to repetitive tasks.
• Machines can be used to speed up production.
• Efficiency is improved (time-related).
• The skill of the worker is improved through repetition.
• Standardised product (lower cost).

Disadvantages of Specialisation

• Cannot cater to niche or small markets.
• Difficult to motivate workers doing repetitive tasks.
• Industrial action is easier to organise and more effective.
• Machines allow for individual craftsmanship to be lost.
• Can be disruption in the chain of production if a worker is ill or absent.
• Occupational immobility – unable to transfer skills learnt to other jobs.

Barter

• Bartering is an exchange of goods or services without using money.
• Disadvantages of bartering:
  • A double coincidence of wants.
  • Rate of exchange could be difficult to decide upon.
  • Some goods are not divisible.
  • Goods are bulky and difficult to transport.
  • Store of Value – some goods are perishable and cannot be stored for long.

Terms and Concepts

Capital/Producer Goods

• Tangible assets or goods used to produce other goods (e.g., buildings, vehicles, stock, raw materials).

Consumer Goods

• Goods ultimately consumed rather than used in the production of another good (final product).

Primary Goods

• Goods utilised in the production of consumer goods (e.g., raw materials, agriculture, fishing, farming).

Consumer

• A person who purchases goods and services for personal use and plays a vital role in the economy.

Free Good

• A good that is not scarce and available without limits (e.g., air, desert sand, water in the oceans).

Private Good

• An item that yields positive benefits to people that is excludable, i.e., its owners can exercise private property rights, preventing those who have not paid for it from using the good or consuming its benefits (e.g., bread).

Public Goods

• Goods that are non-exclusive and cannot be restricted to individual ownership.

Learn about the fundamental economic problem of scarcity, where unlimited human needs and wants exceed limited resources, leading to choice-making and decision-making.