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Topic 1.2
The Basic Economic Problem
This topic covers the essential concepts of needs and wants, along with scarce resources. You will also learn about the basic economic problem and opportunity cost, providing a fundamental framework for GCSE Economics.
EXAM FOCUS: 6-MARKER CONCEPT
Why do scarce resources have higher prices?
The demand for scarce resources always exceeds supply, creating excess demand and competition amongst buyers. This drives up market value, allowing high prices to ration the good.
Needs, Wants & Scarcity
Understanding the difference between what we require and what we desire is the first step in economic decision-making.
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Essential for Survival
Needs
Things that are essential to human survival (e.g., food, water, shelter).
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Non-Essential Desires
Wants
Things that are desirable but not essential to survival (e.g., smartphones, luxury items).
Scarce Resources and Unlimited Wants
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Unlimited Wants
The infinite desires for goods and services that consumers would like to have. It is impossible to satisfy all wants because resources are finite.
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Scarce Resources
Finite and limited economic resources where supply is insufficient to satisfy all human wants.
Opportunity Cost
Opportunity cost is the next best alternative forgone when making an economic choice.
Example: If governments choose to spend on healthcare, the opportunity cost is the money spent on education.
Opportunity cost matters to producers because they must weigh it against alternative options and use that comparison to make informed economic decisions.
The Basic Economic Problem
The basic economic problem is about how to best use the scarce resources available to satisfy unlimited wants.
When making an economic choice, producers ask three key questions:
What should be produced?
How should it be produced?
Whom should it be produced for?
Sustainability
Environmental sustainability
The impact of development or growth where the effect on the natural world is small and possible to manage; now and into the future.
Economic sustainability
The best use of resources in order to create growth or development for a country, firm or individual, both now and into the future.
Social sustainability
The impact of development or growth that promotes an improvement in the quality of life for all people; now and into the future.
Always include the phrase “both now and into the future” when writing about sustainability in exams, as it is often worth a mark.
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Key Tip: Doing well in Module 1 depends heavily on mastering definitions; if you know them thoroughly, you will understand the material and achieve high marks. Use the Microeconomics Glossary to consolidate your knowledge of definitions!