1.1.4

Resources

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Scarcity and the Allocation of Resources

Scarcity means that people need to make choices between goods and services. Resources must be allocated in a way that is seen to be rational.

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Economic activity

  • Economic activity includes a wide variety of actions, such as:
    • Production of goods (tangible products) and services (intangible products).
    • Consumption of goods/services.
  • Because resources are scarce, we must ask three questions about economic activity.
    • What, how, and who to produce for?
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Economic agents

  • It's up to economic agents to decide on how to allocate resources.
  • The three main economic agents are:
    • Producers - people/firms that produce goods or supply services.
    • Consumers - people/firms who purchase the goods/services.
    • Governments - establishes rules for economies.
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Economic agent decision-making

  • Economic agents make decisions based on their various incentives.
    • E.g. for firms this might be profit maximisation.
  • Producers must decide what products to make and the selling price of products.
  • Consumers decide what products to purchase and how much they want to spend on products.
  • Governments decide how much they should get involved in the production and consumption process.

Types of Resources

Resources can be categorised into two groups: renewable and nonrenewable.

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Renewable resources

  • Renewable resources mean that, in theory, the resource comes in unlimited supplies.
  • But this depends on the 'rate of extraction'.
    • If the rate we consume the resource is quicker than the natural rate of production, the resource will become depleted and will have a finite supply.
  • Renewable resources include:
    • Oxygen (O2).
    • Wind energy.
    • Solar energy.
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Non-renewable resources

  • There is a finite supply of these resources.
  • This means that as they are increasingly used up, their cost will get higher.
  • Nonrenewable resources include:
    • Gas.
    • Coal.
    • Oil.

Jump to other topics

1Introduction to Markets

2Market Failure

3The UK Macroeconomy

4The UK Economy - Policies

5Business Behaviour

6Market Structures

7A Global Perspective

8Finance & Inequality

9Examples of Global Policy

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