In this section we consider the following concepts as outlined in the IB Economics Syllabus [© International Baccalaureate Organization, 2003] :

Scarcity
• factors of production: land, labour, capital and management/entrepreneurship
• payments to factors of production: rent, wages, interest, profit (we cover this later on in the course)
Choice
• utility: basic definition
• opportunity cost
• free and economic goods’

What do we mean by scarcity? First we need to know what we mean by needs and wants. These are easy concepts to understand …

Need more on this? …

Having watched the clips, make sure you can define needs and wants. It is always good to have examples as well as definitions.

Now we move on …

This excellent YouTube clip gives us an animated explanation of the concept of scarcity, while referring to Labo[u]r, Raw Materials and Capital. We need to be able to define these three things. Note that Raw Materials is often referred to as Land within Economics.

It is important to be able to give definitions for these three resources (or ‘factors of production’) – land, labour and capital. You should also be able to define a fourth – entrepreneurship (commonly referred to as enterprise’). Use this next YouTube clip to check your understanding of these:

This next YouTube clip develops the concept of scarcity and concentrates on how scarcity means that choices have to be made – this is essentially what economics is all about. (Note – it introduces some ideas that we will return to in more detail in a later section). Watch it and use it to define and give examples of the main concepts which are referred to as such as wants, economic goods, free goods.

The summary below helps us understand the above ideas, and leads us onto the concept of Opportunity Cost.

What are Businesses?

[Taken from http://www.businessstudiesonline.co.uk]

So what is Opportunity Cost?

Opportunity Cost – "the value of the next best alternative forgone as the result of making a decision" [see wikipedia for fuller information]

So what do we mean by ‘next best’? This YouTube clip exemplifies:

This light-hearted YouTube clip demonstrates that it need not be about money, but that cost in this sense can be measured in time:

This YouTube video underlines the concept even further, and considers among other things, the opportunity cost of surfing the web.

It is clear that we have to be able to value the things that we choose to do/make/consume and the things we choose to forego. The money value of an opportunity cost can actually get very complicated. Try this activity:

You can see from this interactive image below that we have explored two of the basic economic principles in this section:

The 6 Core Economic Principles

(thanks to http://www.kidseconposters.com)

By the end of this section you should be able to define and illustrate with examples the following key phrases:

  • needs
  • wants
  • scarcity
  • factors of production
  • land
  • labour
  • capital
  • enterprise / entrepreneurship
  • free goods
  • economic goods
  • opportunity cost
  • utility