Chapter 1: The nature of the economic problem • Basic assumption in Economics Scarcity Everything around us is limited. Scarcity: a situation where there is not enough to satisfy everyone’s wants. • What makes scarcity? • Other people want what we want. • Infinite wants Unnecessary needs? The economic problem: unlimited wants exceeding finite resources. Relationship between economic problem and scarcity: The economic problem of not being able to satisfy everyone’s wants arises because of this scarcity. Different limited resources in different context. • Choice and discrimination Everything is not enough Have to make a choice Limited resources Needs criteria when making choices Discrimination • Discrimination is inevitable Scarcity, choices, discrimination The problem is not discrimination itself, but how to discriminate. • Equality and efficiency Equality and efficiency, which should come first? Question Will scarcity disappear one day? Resources Textbook Land Coal Water Clothes Labour Banking Soft drink Timber Insurance Pen Phone Resources: factors used to produce goods and services. Goods and services Economic goods Economic goods and free goods Economic goods: Economic good is a product which requires resources to produce it and therefore has an opportunity cost. Free goods: a free good is one that takes no resources to make it. Question In your group, discuss and decide whether each of the following is an economic or a free good: a air b education c newspapers d public libraries e state education. Nature of the economic problem Question 1 State three wants and three needs 2 State two examples of free goods 3 Explain why choices have to be made about how resources are allocated in an economy. Scarcity means that resources are limited in supply, so it is not possible to meet everyone’s wants and needs, so economic choices have to be made.
