Y1 1) The Economic Problem (Scarcity & Choice)

• Microeconomics studies how to best solve the basic economic problem, which is allocating scarce resources to meet unlimited human wants and desires.
• The four types of resources, also known as factors of production, are capital, enterprise, land, and labor, which can be remembered using the acronym "CELL".
• Capital refers to man-made aids to production, such as machinery, tractors, vehicles, factories, schools, hospitals, and computers.
• Enterprise refers to entrepreneurs or risk-takers who innovate and produce goods and services to make a profit.
• Land refers to natural resources, such as farmland and rainforests, where goods can be produced or extracted.
• Labor refers to human resources, or workers, who can produce goods and services.
• The world's scarce resources require difficult choices to be made to allocate them effectively, and economics is the study of these choices.
• There are three fundamental choices to be made in allocating resources: what to produce, how to produce it, and for whom to produce it.
• In a market economy, businesses decide what to produce based on consumer demand, how to produce it based on cost-effectiveness, and for whom to produce it based on who can afford the goods and services.
• The government can also intervene to help allocate resources more effectively.
• Opportunity cost is the cost of the next best alternative foregone when a choice is made, and it is a fundamental concept in economics for measuring the effectiveness of choices.
• Opportunity cost is calculated by comparing the value of the current choice with the value of the next best alternative that was given up.
• If the value of the current choice is greater than the value of the opportunity cost, it is considered a good decision, but if the value of the opportunity cost is greater, it is considered a bad decision.

Learn the fundamentals of microeconomics, including the basic economic problem, factors of production, and resource allocation. Understand how businesses and governments make decisions on what to produce, how to produce it, and for whom. Discover the concept of opportunity cost and how it's used to measure the effectiveness of choices.