Basic economic problem: How to allocate scarce resources to satisfy unlimited wants and

needs.
Land: The natural resources required in the production process (such as oil, coal, water, wood,
metal ores and agricultural products).
Labour: The human resources required in the production process (such as skilled and unskilled
labour).
Capital: The manufactured resources required in the production process (such as machinery,
tools, equipment and vehicles).
Enterprise: The skills a business person requires to combine and manage successfully the other
three factors of production and the ability to undertake risk.
Opportunity cost: The cost of the next best opportunity foregone when making a decision.
Primary sector - Contains firms that extract raw materials from the Earth (e.g. farming, fishing
and mining).
Secondary sector - Contains firms that:
Manufacture goods and change raw materials into finished products
Construct buildings, roads and bridges.
Tertiary sector - Contains firms that provide services to the general public and other firms (such
as retail shops, doctors, demists, schools, hairdressers, advertising agencies, lawyers, financial
advisers, insurance companies and banks).
Demand: The willingness, and the ability of customers to pay a given price to buy a good or
service. The higher the price of a product, the lower its demand tends to be.
Price elasticity of demand (PED): Measures the extent to which demand for a product changes
due to a change in its price.
Price elasticity of supply (PES): Measures the degree of responsiveness of quantity supplied of a
product following a change in its price.
Market failure: Occurs when the market forces of demand and supply fail to allocate resources
efficiently and cause external costs or external benefits.
Private costs of production and consumption: The actual costs of a firm, individual or
government such as wages and raw material costs.
Social costs: The true (or full) costs of consumption or production, i.e. the sum of private costs
and external costs.
Private benefits: The benefits of production and consumption enjoyed by a firm, individual or
government.
Social benefits: The true (or full) benefits of consumption or production, i.e. the sum of private
benefits and external benefits.