Unit 1 - Basic economic problem

• Scarcity


  When wants and needs are greater than the resources available
• Choice


  Resources are scarce, so alternatives need to be considered
• Need


  Things that are necessary for survival e.g. food
• Want


  Things people may like to have. These are unlimited
• Human wants are unlimited but resources are scarce
• The fundamental economic problem

  • Scarcity - resources being finite and limited
  • Economic choices - deciding what to produce and how to produce it from the limited resources
  • Opportunity cost - the cost of the option that is not taken
• Resource allocation


  1. Deciding how best to use scarce resources to satisfy as many needs and wants as possible

  2. What to produce

  3. How to produce it

  4. For whom to produce
• Opportunity cost


  The cost of the next best alternative
• The opportunity cost is the cost of the option that is not taken
• End of topic questions

  • Define the term scarcity
  • Explain the difference between a need and a want
  • Explain how opportunity costs arise from the need to make a choice
  • Explain the basic questions of resource allocation
• Discussion questions


  • Why should people look at the opportunity cost of an action?
  • How can we use opportunity cost in a non-monetary context?
  • What is the opportunity cost of showing up to class? What is the opportunity cost of not showing up to class?
  • What are some reasons that companies and individuals should be aware of opportunity costs?
  • How do you think opportunity costs affect the macroeconomics of a nation?
  • Think of a business that has recently made changes to their operations and discuss the opportunity costs of that.