Topic 1.2: The Basic Economic Problem

What is the basic economic problem?

How to best use limited resources to satisfy people’s unlimited wants.

Define scarce resources

When there is an insufficient amount of something to satisfy all wants

Define unlimited wants

The infinite desire for something, whether or not the consumer has the ability to purchase it.

What is a need?

Something people have to have in order to survive such as water, food and clothing.

What is a want?

Things people would like to have but do not need for survival. Wants are luxuries such as designer clothes, holidays and restaurant meals.

What are the three fundamental questions producers have to consider?

What should be produced?

How should it be produced?

Whom should it be produced for?

Give information about the question: What should be produced?

It depends on demands of consumers but also government decisions on spending in public sector

Give information about the question: How should it be produced?

Producers decide what factors of production to use - whether to capital or labour intensive. The decisions are made in order to maximise efficiency and minimise waste in production

Give information about the question: Whom should it be produced for?

Produced for consumers who can afford to pay for them or provided FREE at the point of use by the government, e.g. free healthcare, education, etc.

Why do producers want to minimise waste?

Disposing of waste costs extra money - they want to prevent the spending of extra, unnecessary money.

Define opportunity cost

The next best alternative given up when making a choice

Define economic choice

An option for the use of selected scarce resources

How do producers make the best decisions on how to allocate scarce resources?

They weigh costs and benefits of economic choices against each other

What three things do economists consider the impact of economic choices on?

Economic, social, and environmental sustainability

Define economic sustainability

The best use of resources in order to create responsible development or growth, now and into the future

How does economic sustainability relate to each economic group?

Consumers - prices of goods and/or services

Producers - costs of production

Government - Employment, taxation and spending

Define environmental sustainability

The impact of development or growth where the effect on the environment is small and possible to manage, now and into the future

What are five negative possible environmental impacts?

Pollution (noise and/or air)

Congestion

Use of non-renewable resources

Waste disposal

Large carbon footprints

Define social sustainability

The impact of development or growth that promotes an improvement in quality of life and wellbeing for all, now and into the future