Intro to Economics

Introduction to Economics

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Because our income is scarce, we must
make choices when deciding how to
spend our limited income.

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Economics is the study of how we
make those choices and the different
factors we should take into account
before deciding what we should spend
our money on in order to satisfy as
many of our needs and wants as
possible.

Introduction to Economics

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As a result of satisfying some of our needs
and wants with our limited income, there
will be other needs and wants that we
choose not to satisfy because we cannot
afford to do so.

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In Business Studies, we refer to the item
we decide not to buy because we cannot
afford it as the opportunity cost of the
item we actually did buy.

Opportunity Cost

Opportunity Cost

Opportunity Cost

Multiple Choice

Ian has seen a book that he likes which costs €40. He needs to pay for his gym membership which also costs €40. Unfortunately he only has €40 euro to spend. He decides to pay for his gym membership.

Identify the financial cost?

• €40 for the book

• €40 for his gym membership

• €80

Multiple Choice

Ian has seen a book that he likes which costs €40. He needs to pay for his gym membership which also costs €40. Unfortunately he only has €40 euro to spend. He decides to pay for his gym membership.

Identify the opportunity cost

• €40 for his gym membership

• €80

• €40 for the book

How to Choose

When deciding how to spend our limited resources (income), the two main questions to consider are:

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What are our priorities? Our priorities are the items of expenditure that must be paid.

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What areas of spending will give us the greatest benefit or return?

Opportunity Cost

Factors of production are the economic resources
necessary to produce goods and services. They can be
divided into four categories: land, labour, capital and
enterprise.

Each factor of production should be a source of
income to the person who provides it. For example:

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Land yields rent

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Labour (workers) receives wages

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Capital earns interest

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Enterprise makes profit (hopefully!)

Factors of Production

Land

All the natural resources available in a country that can be used to produce goods and services, for example agricultural land, mines, forests, seas, rivers and lakes.

All the man-made things that are available to help in the production of goods and services, for
example machinery, vehicles, buildings and equipment.

The act of bringing together land, labour and capital to set up a business to produce a product or
supply a service at a profit. The person who displays enterprising qualities in a business is known as
an entrepreneur.

Factors of Production

​Labour

The people available in a country to help produce goods and services and the qualifications and skills they have, for example plumbers, technicians, pilots, teachers, architects and receptionists.

​Capital

​Enterprise

When we are making decisions about how to spend our scarce resources, we must look at all of the
possible consequences of the decisions we make. We should look at:

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The financial cost

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The opportunity cost

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The benefits to the organisation or household

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The benefits to society

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Any additional costs that will be incurred by us as a direct result of the original purchase

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The costs to society

Consequences of Making Choices