The Basic
Economic
Problem
Choices and the allocation of resources
Learning Objectives?
⮚ define the nature of the economic problem (finite
resources and unlimited wants)
⮚ define opportunity cost and analyse particular
circumstances to illustrate the concept
⮚ evaluate the implications of particular courses of
action in terms of opportunity cost.
UNSCAMBLE
🠶 cItyscar
🠶 noemcoics
🠶 cechoi
🠶 onitypportu stco
🠶 recessour
🠶 scfator fo ducprotion
🠶 edsne
🠶 wtsan
KEYWORDS
🠶 Scarcity
🠶 Economics
🠶 Choice
🠶 Opportunity cost
🠶 Resources
🠶 Factors of production
🠶 Needs
🠶 Wants
Activity
🠶 What is economics?
Economics
🠶 It is a social science which studies human behaviour
as a relationship between ends and scarce means
which have alternative uses
Basic Economic Problem
The basic economic problem is that
people have unlimited wants but there
are limited resources to satisfy these
wants.
Decisions have to be made about how
best to use the limited resources to
satisfy as many of the wants as
possible.
Scarcity
🠶 Scarcity means
limited/finite resources
used in satisfying
unlimited/infinite
human wants. That is,
human wants are
unlimited but the
resources that are
used in producing
them are not enough
Choice
🠶 Choice is the act of
selecting among many
unlimited wants.
🠶 For example if we
choose to use up
scarce resources in the
production of cars
those same resources
cannot be used to
produce food. This
opportunity is forgone
TASK A
1. Explain the difference between wants and needs. Give two
examples of each.
2. Why do we say that all economies face the basic economic
problem?
3. List the three basic economic questions every society must
answer.
TASK B
4. There are unlimited wants but limited resources." Discuss
this statement.
5. Why is opportunity cost an important concept for business
owners?
6. How might a scarcity of skilled labour affect a business's
production decisions
So, we all have to make choices
There is a limited amount of resources such as raw materials,
machines, factories and skilled workers. But there are a number
of different ways in which they can be used.
CHOIC E
E CHOIC
Resource allocation therefore involves deciding how best to use
scarce resources to satisfy as many needs and wants as possible
ACTIVITY
🠶 Explain why the economic problem can never be
resolved.
Let’s compare
🠶 Due to limited resources as a result of unlimited
human want.
🠶 Decrease in resources as human continues to use
them e.g crude oil, gold, iron ore etc
🠶 Human wants continues to increase due to
interaction with other humans e.g cars, phones,
clothes etc.
Opportunity Cost
Op
p
the ortu
n
When making choices, we assess alte cost o ity c
the opportunity cost or the res rnativ f the ost –
u n i
a d lt of e fore ext b s
alternative forgone eci m g
sio akin one est
n g as
a
The opportunity cost of taking action
is what we could have got if we had
taken an alternative action
$100
Food? Entertainment?
Clothing?
If you have a limited amount of money
you have to make a choice as to what
you spend it on
Examples:
A government must decide whether it
wants war planes, roads or health
care because it can not get enough
resources to make the three.
$100bn
Defence? Health care?
Roads?
MULTIPLE CHOICE
Activity
🠶 Describe a possible opportunity cost of a student
going to university.
🠶 Extension
🠶 Explain why government spending on
unemployment benefits involves an opportunity
cost.
