The basic economic problem

G3 Economics - syllabus K343, 2027

Scarcity, the factors of production, opportunity cost and production possibility curves.

• Scarcity: the basic economic problem

  Wants are unlimited but resources are limited, so every person, firm and government must choose.

• What, how and for whom: and goods that are free

  Scarcity forces every economy to decide what to produce, how to produce it and who gets it.

• The four factors of production and their rewards

  Land, labour, capital and enterprise produce goods and services, earning rent, wages, interest and profit.

• Changing the quantity and quality of resources

  An economy can produce more when it has more factors of production or better ones.

• Opportunity cost: the next best alternative

  Every choice has an opportunity cost: the next best alternative you give up.

• Production possibility curves: what the points mean

  A PPC shows the maximum combinations of two goods an economy can make with all its resources.

• Moving along a PPC shows opportunity cost

  Moving along a PPC means producing more of one good by giving up some of the other.

• Shifts of the PPC: growth and decline

  More or better resources shift the PPC outwards; losing resources shifts it inwards.

• Put it together: Spend the development budget

  A government has enough money for one major project this year. Each project uses scarce resources, so choosing one means giving up the others. Compare who gains and what is given up.