The Nature and Purpose of Economic Activity – AQA Spec

Purpose of Economic Activity

The purpose of Economic Activity is stimulated by producing goods and services which satisfy consumers’ needs / wants

Part of the production process in creating these goods involves using resources (inputs in the form of factors of production) to produce output (goods and services)

Economists have to decide how to use and allocate their scarce resources

What should be produced?

Decisions regarding the quantities of each good being produced must be decided – this is usually done by the government and public sector.

Considering the problem of opportunity cost, they have to be careful when deciding the quantities of each good

How should it be produced?

The decisions regarding the allocation and distribution of the goods / services produced are taken into consideration alongside the rewards gained from each factor of production

In order for production to be efficient, firms aim to maximise profits, while keeping their costs to a minimal

The decision between a labour intensive production and a capital intensive production is influenced by the cost and productivity of each factor of production

Who will benefit from the goods / services produced?

Those able to afford and willing to pay the price of the good / service will benefit, in addition to consumers with purchasing power