Ceteris paribus is the name given for the assumption that “all other things being equal”. This includes the assumptions that all other factors don’t change when a factor is changed. This is critical to the isolation of the effects of changes in any particular factor.
Scarcity occurs because people’s wants and needs are unlimited while the resources needed to produce goods and services to meet those wants and needs are limited.
Prices are used to ration goods and services out, while everyone would want goods and services not everyone who wants it would be willing and able to pay for it.
Factors of production : land, labour, capital and entrepreneurship
Land is a collective term for land, sea and everything contained in them, for example oil, minerals and fish. It includes all natural resources. This factor of production is paid for with rent.
Labour is the collective term for human factors: workers/employees contribute physically (ie moving boxes) and mentally (contributing ideas). This factor of production is paid for with wages.
Capital are either human goods which aid the production of other goods OR one of the following 3 types. It is paid for with interest.
1. Human capital is investment into education/healthcare to improve the quality of the workers.
2. Physical capital is investment into factories and machinery to increase productivity.
3. Infrastructure or social overhead capital are systems and facilities that are needed for economic activity. Examples are roads, railways, airports, electricity and other utilities.
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