1.1

• The economic problem is the allocation of a nation’s scarce resources between competing uses that represent infinite wants.
• Demand for resources is greater than their supply.
• Decisions have to be made about how to allocate a nation’s scarce resources – the amount of resources available when supply is limited.
• To overcome the economic problem, important decisions have to be made about what to produce and how to produce.
• Governments can issue pollution permits to a company, which give businesses the right to discharge a certain amount of polluting material, say 1 tonne per year.
• Many countries around the world have laws designed to protect the environment.
• Pollution is difficult to measure.
• Pressure has grown on governments in recent years to pass more legislation to protect the environment due to growing concerns of global warming.
• Resources often have a number of alternative uses; as a result, people have to make a choice about which way to use them.
• Individuals, producers and governments face this choice.
• Individuals have to choose how to spend their limited budgets.
• Producers may have to choose between spending $100,000 on advertising, training its workforce or buying a new machine.
• A government may have to decide whether to spend $5000 million on building new hospitals, increasing welfare benefits or building a new motorway.
• Opportunity cost is the cost of the next best alternative forgone when making a choice.
• Anita chose to spend her Rs5000 on the most preferred item in her list, which was the meal out with her friends.
• If a consumer is faced with buying a product from three different suppliers at the same price, they will buy the best quality product.
• If a business owner can buy some raw materials from three different suppliers, they will always buy the cheapest available as long as the quality is the same.
• Businesses aim to maximise their profit by making decisions that have the best financial results.
• Consumers may not maximise their benefit because they are not good at calculating their benefits.
• Consumers may not maximise their benefit because they are influenced by the behaviour of others.
• Economists assume that consumers will always choose the cheapest available product from three different suppliers, as long as the quality is the same.
• When setting a price for a product, a business owner will always choose the highest price that the market can stand.
• Consumers aim to maximise their benefit by spending their money on items that provide the most satisfaction.
• Consumers may not maximise their benefit because they have habits that are hard to give up.
• When making choices, individuals, firms and governments will face a cost once their choice has been made, this is called the opportunity cost.
• A production possibility curve is a line that shows the different combinations of two goods an economy can produce if all resources are used up.
• A PPC shows the different combinations of two goods that can be produced if all resources in a country are fully used.
• A PPC shows the maximum quantities of goods that can be produced.
• A PPC assumes that the country can produce consumer goods or capital goods.
• The private sector is responsible for providing the everyday goods and services bought by people.
• In some mixed economies, the state also makes provision for people who cannot work due to illness or disability, for example.
• The government can use legislation to prevent businesses from dominating markets.
• State money can be used to provide public goods and merit goods.
• Market failure can occur due to externalities, lack of competition, missing markets, lack of information, factor immobility, or a combination of these factors.
• To overcome the problem of poor information, the government can help by passing legislation forcing firms to provide more information about products.
• Most public sector goods are provided free to everyone and paid for from taxes.
• Owning through the threat of market failure, the government often has to intervene in markets.
• The government may be able to help to make some factors more mobile, such as retraining workers when their previous jobs become redundant.
• A system of financial benefits exists to make sure that people have enough money to survive.
• Market failure is where markets lead to inefficiency.