The Nature of the Economic Problem (Edexcel IGCSE Economics)
Exam board Pearson Edexcel · IGCSEUpdated 2024-04-03
The Basic Economic Problem: Scarcity
Spec point —
1.1.1a
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The basic economic problem is that resources are scarce
- In economics, these resources are called the factors of production
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There are finite resources available in relation to the infinite wants and needs that humans have
- Needs are essential to human life, e.g. shelter, food, and clothing
- Wants are non-essential desires, e.g. better housing, a yacht, etc.
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Due to the problem of scarcity, choices have to be made by producers, consumers, workers and governments about the best (most efficient) use of these resources
- E.g. Should the resources (land) be used to provide housing, which is an essential need, or rather allocated towards creating a beautiful park (want)
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Economics is the study of scarcity and its implications for resource allocation in society
All Stakeholders in an Economy face the Basic Economic Problem
| Consumers | Producers | Workers | Government |
|---|---|---|---|
| - In a free market, scarcity has a direct influence on prices - The scarcer a resource or product, the higher the price consumers will pay | - Producers selling products made from scarce resources will find their costs of production are higher than if they were selling products made from more abundant resources | - Workers may want a more comfortable and safer working environment but their employers may not have the resources to create it | - Governments have to decide if they will provide certain goods/services or if they will allow private firms to provide them instead - Their decision influences the allocation of resources in society |
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