Section 1 - The basic economic problem

Basic economic problem

How best to allocate scarce resources to satisfy unlimited needs and wants.

Needs

Goods and services essential for survival.

Wants

Goods and services that are desired but not essential for survival.

Economic goods

Goods that are limited in supply.

Free goods

Goods that are unlimited in supply and have zero opportunity cost.

Factors of production

Resources used to produce goods and services: land

Opportunity cost

Next best alternative foregone when making a choice.

Production

Total output of goods and services.

Production possibility curve (PPC)

Curve showing maximum possible combinations of two goods that can be produced with given resources.

PPC diagram

Graph showing maximum combinations of goods and services that can be produced in an economy.

Optimum population

Population size that maximises output per head.

Population

Total number of inhabitants of a country.

Population distribution

Composition and structure of a country’s population.

Population growth

Rate of change in the size of a country’s population.

Population pyramids

Diagrams showing age and gender distribution of a country’s population.

Overspecialisation

Too much concentration on a limited range of goods and services