BS-Business activity, page no 2-6

The fundamental economic problem results from the mismatch between limited resources and unlimited wants.

The economic problem-Needs, wants, scarcity and opportunity cost.

• Needs: Needs are things that people require to survive. Food, water, clothing, and shelter are all needs. If a human body does not have those things, the body cannot function and will die. Example - Food, Water, Clothing, Shelter,

Medicine.

• Wants: Wants are items that an individual would like to have but do not require for survival. Example - Phone., Computer, Television

• Scarcity: Scarcity is an economic concept where individuals must allocate limited resources to satisfy their needs.

• Opportunity cost: An opportunity cost is the value of the option not taken when a business makes a decision.

The economic problem-The real cause.

The real cause of the shortage or scarcity of goods and services is that there are not enough factors of production to make all of the goods and services that the population needs and wants.

There are four factors of production

• Land: The natural resources used in the production of a product such as water, oil, fields or wood.

• Labor: The people that work in the business such as teachers, joiners, builders or doctors.

• Capital: The money and equipment used to produce the product or service such as machinery or delivery trucks.

• Enterprise: An enterprise is a large-scale organization with a composite structure. Enterprise companies often have multiple divisions, each with its specialized function.

Limited resources-The need to choose.

Opportunity cost is the next best alternative given up by choosing another item.

The importance of specialization-The best use of limited resources.

In order to make more effective use of limited resources, companies need not only to recover and recycle waste, but also to reduce the volume of resources wasted.

• Specialization: Speciation occurs when people and businesses concentrate on what they are best at.

• Specialization and the division of labor: Division of labor is when the production process is split up in to different tasks and each worker performs one of these tasks. It is a form of specialization. Division of labor has its advantages and disadvantages. They are:

Advantages:

• workers are trained in one task and specialize in this-this increases efficiency and output.

• Less time is wasted moving from one workbench to another.

• Quicker and cheaper to train workers as fewer skills need to be taught.

Disadvantages:

• Workers can't become bored doing just one job-efficiency might fail.

• If one worker is absent and no one else can do the job, production might be stopped.

THE END.