Gr 10 Chapter 2 Basic economic problem

BASIC ECONOMIC PROBLEM

Concepts you have to know

CONCEPT DESCRIPTION
Absolute scarcity When someone has the means and resources to buy a
product, but there is no supply of that product or service
Relative Scarcity When there is more than enough of a product or service
available, but there are no resources to purchase or make use
of them
Free goods Goods that are plentiful and have no price
Economic goods Goods that are scarce and have a price
Opportunity cost The cost of making choices
Natural Resources All the resources found in nature, such as land, and which are
sometimes called “gifts of nature”
Labour The mental and physical effort which is used in the production
process
Capital The resources that are used to produce goods and offer
services
Production The process whereby an entrepreneur combines available
resources (land, labour and capital) and turns them into some
sort of product which is used to satisfy the wants and needs of
the people
Specialisation When a business specialises in the of one product or service
Division of labour Where each worker specialises in doing a specific task
Globalisation The result from world specialisation ignites international trade
Primary Industry The production activities involved in extracting and collecting
the natural resources from the oceans, under or above earth
Secondary Industry The production activities involved in the processing or
changing of the natural resources into products that are ready
to use by the public
Tertiary Industry The production activities involved in the distribution of goods
and the provision of services to the public
Consumption A process where people buy or use a particular good or service
Immediate consumption When a good or service is used only once to satisfy a person’s
needs or wants
Deferred consumption When a good or service is used over and over again to satisfy
a person’s needs or wants
Primary Industry The production activities involved in extracting and collecting
the natural resources from the oceans, under or above earth
Secondary Industry The production activities involved in the processing or
changing of the natural resources into products that are ready
to use by the public
Tertiary Industry The production activities involved in the distribution of goods
and the provision of services to the public

Exchange A process whereby products move from the producer to the

consumer and is also called trade.

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Gr 10 Chapter 2 Basic economic problem

CONCEPT DESCRIPTION
Markets Any place where buyers and sellers meet to exchange goods
and services at a specific price
Market for goods and A market for products and services is where members of the
services economy purchase goods and services
Market for factors of A market for factors of production provides members of the
production economy with the factors of production that they need to
produce goods and services
Durable consumer goods These are final goods bought by consumers where the usage
(consumption) lasts for more than one year
Semi-durable consumer These are final goods bought by consumers where the
goods consumption is for a limited period.
Non-durable consumer These are final goods that are used up the first time they are
goods consumed. Examples are food, drinks, petrol and medicine
Services These are intangible things a consumer gets from a service
provider

1. The Scarcity Problem

• Scarcity is the basic problem of all economies.
• Scarcity forces people to make choices
• Definition: Humans have unlimited needs and wants that need to be satisfied with
limited resources.
• All households and economies face the problem of scarcity
• Choice is required as we must prioritise which needs and wants to satisfy,
because our resources are not enough to satisfy them all. We have limited
resources to satisfy our unlimited needs and wants

Needs are the basic goods in the life that we need to survive, e.g. food, water, clothing
and shelter

Wants are luxury goods that brings pleasure, e.g. televisions and iPhones

Scarcity
The demand for a resource is greater than its supply

4. Scarcity, Choice and Opportunity Cost

• Scarcity is the basic economic problem.
• Only a limited number of resources are available on Earth. These scarce
resources are important because they are used to make goods such as food,
clothing, and houses. These goods are also limited
• Scarcity forces people to choose between alternatives and make choices.

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Gr 10 Chapter 2 Basic economic problem

The scarcity of goods has two main effects on people:

• People have to make an effort to acquire resources (for example money) to
purchase goods
• Because resources are also scarce, people cannot purchase everything they
desire, they have to make choices. Choosing one thing means they will have to
forgo (do without) other things

5. Alternatives and choices

• Consumers cannot satisfy their needs and wants at the same time. Scarce
resources (such as money) force consumers to make choices.
• Consumers need to choose between the alternatives that are available
• We can measure the cost of a good in money or in terms of another product that
we did not buy but wanted to buy
• Definition: The opportunity cost is the value of the best alternative that could
have been chosen but what was not chosen
OR
• It the real cost of choosing one product and not another

Example: Opportunity costs

• You have a R50 (resources), and want a hamburger, chips and coke, but also
want airtime.
• Because of your scarce resources, you need to make choices between the two
alternative goods.
• (the food and airtime)
• You decide to buy the airtime.
• Your opportunity cost is the burger, chips and cooldrink to the value of R49 that
you have to sacrifice.

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Gr 10 Chapter 2 Basic economic problem

6. Absolute and relative scarcity

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Gr 10 Chapter 2 Basic economic problem

7. Economic and free goods

Revision
1. WRITE ONLY THE CORRECT LETTER (A – D) NEXT TO THE NUMBER OF
THE QUESTION

1.1 Individuals have to … in order to deal with the scarcity problem.

A. buy everything they want
B. make assumptions
C. work harder
D. make choices

1.2 … is a condition that exists when there is not enough of a resource in existence to
satisfy existing demand for it.
A. absolute scarcity
B. relative scarcity
C. opportunity costs
D. scarcity

1.3 … are examples of economic goods.

A. sunlight, computer and television
B. car, chair and air
C. bag, blanket and cellphone
D. cup, television and sunlight

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Gr 10 Chapter 2 Basic economic problem

1.4 Suppose that you prefer reading a book you already own to watching TV and that
you prefer watching TV to listening to music. If these are your only three choices,
what is the opportunity cost of reading?
A. watching TV
B. watching TV and listening to music
C. sleeping
D. going out with friends

2. Give ONE TERM for each of the following descriptions.

2.1 This goods do not command a price.
2.2 This type of scarcity means that we do not have enough resources to
satisfy all our wants and needs.
2.3 These goods command a price in the market
2.4 The value of the best forgone opportunity

3. Study the cartoon below and answer the questions that follow:

3.1 What happened with the price of fuel in the cartoon? (1)
3.2 Give ONE example of free goods in the cartoon. (1)
3.3 Briefly describe the scarcity problem. (2)
3.4 What form of scarcity is illustrated in the cartoon? Explain briefly. (2)
3.5 Explain why fuel is considered an economic good? (4)
4. Distinguish with the aid of an example, the difference between absolute and
relative scarcity. (8)
5. Tabulate the differences between free and economic goods. (8)
6. Study the cartoon below and explain the basic problem that all economies
Have to deal with (8)

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Gr 10 Chapter 2 Basic economic problem

BASIC ECONOMIC PROCESSES

The ultimate aim of economic activity is to satisfy human needs and wants.

1. PRODUCTION
It is the process to change resources (inputs) into goods and services (outputs) to
satisfy their needs and wants

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Gr 10 Chapter 2 Basic economic problem

The tree main economic activities in modern society are production, consumption and
exchange

1. PRODUCTION

In Economics the term products refer both to goods and services.

Production is the making of goods and services that consumers use to satisfy their
unlimited needs and wants (Product and production not the same)
Goods and services

The Business
Factors of production
(firm)

INPUTS OUTPUT

Producers are the businesses (firms) that make goods and supply services. They
decide what to make, how to make it and for whom to make it. They use resources
(factors of production)

INPUTS = FACTORS OF PRODUCTION [CELL]

CAPITAL: Tools, equipment and factories used to produce goods and services,
earns interest

ENTREPRENEURS: People who take risks in search of profit.

LABOUR: Paid mental and physical efforts of people with all their efforts, abilities
and skills to earn a salary or wage

LAND: gift of nature, not created by human and earn rent.

ADDITIONAL FACTORS OF PRODUCTION

TECHNOLOGY: innovative ideas, techniques and methods

INFRASTRUCTURE: transportation, electricity

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Gr 10 Chapter 2 Basic economic problem

2. CONSUMPTION
It is the use of goods and services to satisfy people’s needs and wants.

Consumers use the following types of products:

• Durable goods: Goods that can be used over and over for a number of years.
E.g. cars, furniture and household items.
• Non-durable goods: Goods that can only be used once, because they are
destroyed once being used. E.g. food, beverages and petrol
• Semi-durable goods: Goods that last long and can be used over and over for a
limited period then they must be replaced. E.g. car parts and tyres, clothing,
shoes
• Services: Non-tangible items used to satisfy needs and wants. E.g. haircuts,
dentistry, roof repairs

Consumption expenditure is the buying of goods and services for use by households

3. EXCHANGE
• The process of trade (selling and buying) that takes place when goods and
services are traded for money.
• It takes place in a market

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Gr 10 Chapter 2 Basic economic problem

PROMOTION OR VIOLATION OF HUMAN RIGHTS AND THE ENVIRONMENT

1. HUMAN RIGHTS
All the rights that everyone should have to provide them with a basic quality of life.
Human Rights are protected by South African Constitution.

TWO MAIN CATEGORIES OF HUMAN RIGHTS

• Socio-Economic Rights: Access to water, health care, food, education and
housing
• Civil and Political Rights: Freedom of movement, protection and the right to
vote.

RIGHTS OF BUSINESSES AND “EMPLOYMENT”

• Every citizen has the right to choose their trade, occupation or profession.
• Everyone has the right to fair labour practices
• Every worker has the right to form and join a trade union
• Every employer has the right to form and join an employer’s organization

2. THE ENVIRONMENT
The environment consists of the physical surroundings (nature), as well as the
conditions that affect people’s lives.

THE IMPACT OF ECONOMIC ACTIVITY ON OUR ENVIRONMENT

HOW CAN WE CONSERVE THE ENVIRONMENT?

• Reduce consumption of natural resources
• Avoid pollution
• Recycle resources where possible
• Protecting unique resources
• Reduce our dependence on fuel that emit carbon.
• Use alternative sources of energy (wind and solar power)

Revision

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Gr 10 Chapter 2 Basic economic problem

1. Match the concepts in Column A with one of the explanations in Column B. Write
down only the correct letter next to the number

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2.1 Name FOUR factors of production. (4 x 1) (4)
2.2 Name TWO examples of socio-economic rights. (2 x 1) (2)
2.3 Explain why fish and chips is regarded as a non-durable good. (1 x 2) (2)

3 Study the extract below and answer the questions that follow:

3.1 What is manufactured in this factory? (1)

3.2 Who protects human rights in South Africa? (1)
3.3 Briefly describe the term human rights. (2)
3.4 Explain one human right in the article that is being violated. (2)
3.5 How much would a worker earn per 5-day week if he/she works 10 hours
per day? Show all calculations. (4)

4. Discuss the four categories of product on which consumers spend their income (8)
5. How can we conserve our environment? (8)

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