1.2 The Basic Economic Problem

Basic Economic problem

how to best use limited resources to satisfy the unlimited wants of people 

A Want

Things people would like to have but dont need for survival. THE ARE UNLIMITED 

luxeries such as designer clothes, holidays and restaurant meals.

A need

something people have to have in order to survive eg water food clothing. THEY ARE LIMITED 

Opportunity cost

the next best alternative given up when making a choice

unlimited wants

the infinite desire for something

Scarce Resources 

When theres an insufficient amount of something to satisfy all wants 

Economic Choice 

An option for the use of selected scarce resources 

Economic Sustainability

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

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

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

3 FUNDAMENTAL questions that underpin the basic economic problem

• WHAT should be produced?

• HOW should it be produced?

• WHOM should it be produced for?

What should be produced?

• Depends on decisions by consumers what they need and want but also government decisions on spending in public sector

• eg boost to NHS budget will increase amount of medical procedures

How should it be produced?

• Producers will decide what factors of production to use- whether to be labour or capital intensive- in order to maximise efficiency and minimise waste in production

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

• eg state education, NHS.

Production

The total output of goods and services produced by a firm

When told to EXPLAIN the opportunity cost of summin remember to:

eg uk govt spending 8bln on olympics:

state the opportunity cost- less money goes to education, healthcare

explain the cost- the benefits of educationr the kids literacy skills incr so more employable workers for jobs in future benefiting economy