Economics Key Concepts: Opportunity Cost, Needs, and Production

Posted on Mar 25, 2025 in Economy

Topic 1: Core Economic Concepts

1. Opportunity Cost

The benefit of the next best alternative foregone.

2. Need

Something essential or very important, rather than just a desire.

3. Types of Needs

  • Basic: Essential for survival.
  • Secondary: Desires or wants.
  • Present: Felt immediately.
  • Future: Needed for later use.
  • Recurrent: Needed frequently (e.g., daily).
  • Occasional: Needed sometimes.

4. Good

A physical or tangible item that satisfies a human want or need.

5. Types of Goods

  • Tangible: Can be touched and seen.
  • Intangible: Cannot be touched or seen.
  • Consumer: For consumption by individuals.
  • Capital: Used in production.
  • Durable: Long-lasting.
  • Non-durable: Short-lived.
  • Final: Ready for consumption.
  • Semi-finished: Used in further production.
  • Complementary: Used together (e.g., car and petrol).
  • Substitutive: Can be used in place of each other (e.g., car lights).
  • Private: Owned by individuals or firms.
  • Public: Available to everyone.
  • Free: Unlimited (e.g., air).
  • Economic: Limited in supply.

6. Maslow’s Hierarchy of Needs

  1. Self-actualization
  2. Esteem
  3. Love and Belonging
  4. Safety
  5. Physiological

7. The Production Possibility Curve (PPC)

Shows the maximum possible output combinations of two goods or services that can be produced with a given set of inputs (natural resources, factors of production, and technology).

8. Circular Flow

Interaction between businesses, government, and individuals. Includes the goods and services market and the factors of production market.

Topic 2: The Firm and Production

1. Firm

An economic agent or business organization (e.g., limited liability company or partnership) that sells goods or services to make a profit. Objectives include profit, profit maximization, growth, survival, social welfare, and environmental objectives. Adds value to products and services through the value chain.

Value Chain: A high-level model developed by Michael Porter used to describe the process by which a business transforms raw materials through various processes to create a final product.

2. Business Factors

  • Human group
  • Assets
  • Organization
  • General environment
  • Specific environment

Types of Enterprises:

  • Large enterprise: 250 or more employees
  • Medium enterprise: 50-249 employees
  • Micro enterprise: Less than 50 employees

Technical Efficiency: Using the minimum quantity of inputs to produce the same amount of goods or more.

Economic Efficiency: Using the minimum costs to produce the same amount of goods or more.

3. Factors of Production

Land, Capital, Labour, Entrepreneurs.

4. Labour Productivity

Outputs / Time.

5. Fixed Cost

Costs that must be paid regardless of output.

6. Variable Cost

Costs that depend on the level of output.

7. Formulas

  • Total Cost (TC): Total Fixed Cost (TFC) + Total Variable Cost (TVC)
  • Average Cost per Unit (AC): Total Cost / Total Output
  • Average Fixed Cost per Unit (AFC): Total Fixed Cost / Total Output
  • Average Variable Cost per Unit (AVC): Total Variable Cost / Total Output

Total Output: Production.

8. Revenue

The total amount sold multiplied by the price per unit. Total Revenue (TR) = Price per Unit x Quantity Sold.

9. Entrepreneur

Someone who exercises initiative by organizing a venture to take advantage of an opportunity and, as the decision-maker, decides what, how, and how much of a good or service will be produced.

10. Company Types

  • Limited Liability Company: Most common form for small and medium companies. Minimum investment of 3,000.
  • New Enterprise Limited Company: Encourages medium and small businesses; must be registered to a person. Investment: 120,202.
  • Public Limited Company: For significant investment projects. Investment: 60,101.