The Economic Problem & Factors of Production
Client: Timber & Co. Furniture Startup
The Client Brief
Meet Timber & Co., a startup furniture business. They make Tables and Chairs. They have 10 units of wood available this week and limited cash flow. The founder must decide: Should we make more Tables or more Chairs?
Part 1: Understanding Scarcity
AO1 Knowledge: The Economic Problem exists because:
Human wants are unlimited (we always want more) but resources are limited. This creates scarcity.
The Scarcity Simulator (AO2 Application)
Allocate Timber & Co.'s limited wood. Remember: 1 Table = 5 wood units, 1 Chair = 2 wood units.
Uses 0 wood
Uses 0 wood
10 wood remaining
Part 2: The Four Factors of Production
AO1 Knowledge: To produce goods, businesses need four Factors of Production:
- Land: Natural resources (wood, factory site)
- Labour: Human workers (carpenters, designers)
- Capital: Man-made tools and machinery (saws, drills)
- Enterprise: The risk-taking owner who organizes the other factors
Factor Sorter (AO1 Test)
Classify each item into the correct factor category for Timber & Co.
Wood
Saw
Carpenter
Risk-taking Owner
Factory Site
Part 3: Specialisation & Division of Labour
AO1 Knowledge: Specialisation means workers focus on one specific task instead of doing everything.
This is also called Division of Labour.
The Assembly Line Simulator
Compare production with and without specialisation at Timber & Co.
Examiner's Traps
- ×Do not say a business faces the economic problem because it has "no money." The correct term is limited resources.
- ×Opportunity cost is not "what you lose." It is the next best alternative given up.
- ×Do not confuse Capital (machinery) with Finance (money). Capital is a physical factor of production.
Keep reading — this lesson marks itself done automatically.