**2015 ECONOMICSB** 1.1.1 The Economic Problem

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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 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
        • 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

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RosyKid

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