The Economic Problem- The nature and purpose of Economic Activity

The Economic Problem- The nature and purpose of Economic Activity

1. Central purpose of Economic Activity

   • production of GOODS and SERVICES to satisfy our needs and wants
     • If we can organise a system meeting needs and wants more efficiently then we could INCREASE ECONOMIC WELFARE

2. Questions and economic system attempts to solve

   • WHAT should we produce?
   • HOW should we produce it?
   • For WHO should it be produced?

3. Some (less obvious) examples of economic activity...

   • DIY
   • subsistence farming
     • producing and eating your own crops to live
   • barter
     • occurred in olden days: e.g. trading 2 chickens for a sheep
   • consumption of clean air
   • consumption of the natural environment for leisure and recreation
     • e.g. running around a field

4. What does production create?

   • CONSUMER GOODS
     • bought by PEOPLE for the purpose of FINAL CONSUMPTION, satisfying needs and wants
     • e.g. clothes, food, jewelery
     • CONSUMER DURABLE products are consumer goods with a long average life during which they deliver a 'stream' of consumer services, e.g. a washing machine
     • NON-DURABLE consumer goods include washing powder, it needs replacing after it has been used
   • CAPITAL GOODS
     • bought by FIRMS for the purpose of PRODUCTION (unmanufactured goods)
   • SERVICES
     • INTANGIBLE economic goods (can't be felt or seen)
     • Can be COMMERCIAL SERVICES (aka INDIRECT)
       • e.g. banking, insurance
       • through firms
     • Can be DIRECT SERVICES
       • e.g. hairdressing, teaching
       • straight to people

5. The Structure of Production

   • 3 main sections-
     • PRIMARY SECTOR
       • SECONDARY SECTOR
         • TERITARY SECTOR
           • produces services e.g. transport, financial services and education
         • raw materials transformed or manufactured into goods
       • raw materials extracted, food is grown