**2015 ECONOMICSB** 1.1.1 The Economic Problem
- Created by: RosyKid
- Created on: 25-03-16 21:49
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- THE ECONOMIC PROBLEM (1.1.1)
- The Problem of Scarcity
- Scarcity - refers to the shortage of resources in relation to the quantity of human wants
- Basic Economic problem is Scarcity
- Wants are unlimited, resources are finite (limited)
- Choices then have to be made on distribution of the scarce resources
- Resources must be used and distributed in the best possible and most efficient way
- Choices then have to be made on distribution of the scarce resources
- Wants are unlimited, resources are finite (limited)
- Choices and Potential Trade-Offs
- The problem of scarcity is the cause of opportunity cost
- Opportunity Cost - the opportunity cost of a choice is the value of the next best alternative forgone. e,g, choosing a to purchase a chocolate bar at the shop means you forgo the opportunity to purchase a packet of crisps with your scarce resources (money)
- Opportunity Cost is important to economics agents, such as, consumers, the government and producers.
- e.g. the government might have to choose between spending more on the NHS or on Education
- e.g. a producer has to decide on whether to hire extra staff or invest in new machinery
- When producing goods the economy has to consider...
- WHAT to produce
- Determined by consumer preferences
- show by demand for products
- Determined by consumer preferences
- HOW to produce it
- Producers seek profits and aim to minimise costs
- WHO to produce it for
- For whoever has the greatest purchasing power within the economy (the customer) and is therefore able to buy it
- WHAT to produce
- The problem of scarcity is the cause of opportunity cost
- The Problem of Scarcity
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