The Economic Problem (Edexcel A Level Economics A)

Revision Note

Steve Vorster

Written by: Steve Vorster

Reviewed by: Jenna Quinn

The Basic Economic Problem: Scarcity

  • The basic economic problem is that resources are scarce

    • There are finite resources available in relation to the infinite wants and needs that humans have

    • In economics, these resources are called the factors of production

    • Due to the problem of scarcity, choices have to be made by producers, consumers and governments about the best (most efficient) use of these resources

  • Economics is the study of scarcity and its implications for resource allocation in society

  • In a free market, scarcity has a direct influence on prices

    • The scarcer a resource, the higher the price for it will be

    • The less scarce a resource, the lower the price for it will be

  • Resources can either be renewable or non-renewable

    • Renewable resources can be used repeatedly and naturally replenished, for example wind generated electricity

    • Non-renewable resources cannot be naturally replenished at a pace that keeps up with consumption. For example, oil and coal

Opportunity Costs

  • Opportunity cost is the loss of the next best alternative when making a decision

  • Due to the problem of scarcity, choices have to be made about how to best allocate limited resources amongst competing wants and needs

  • There is an opportunity cost in the allocation of resources

    • When a consumer chooses to purchase a new phone, they may be unable to purchase new jeans. The jeans represent the loss of the next best alternative (the opportunity cost)

    • When a producer decides to allocate all of their resources to producing electric vehicles, they may be unable to produce petrol vehicles. The petrol vehicles represent the loss of the next best alternative (the opportunity cost)

    • When a government decides to provide free school meals to all primary students in the country, they may be unable to fund some rural libraries which may have to close. The libraries represent the loss of the next best alternative (the opportunity cost)

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Steve Vorster

Author: Steve Vorster

Expertise: Economics & Business Subject Lead

Steve has taught A Level, GCSE, IGCSE Business and Economics - as well as IBDP Economics and Business Management. He is an IBDP Examiner and IGCSE textbook author. His students regularly achieve 90-100% in their final exams. Steve has been the Assistant Head of Sixth Form for a school in Devon, and Head of Economics at the world's largest International school in Singapore. He loves to create resources which speed up student learning and are easily accessible by all.

Jenna Quinn

Author: Jenna Quinn

Expertise: Head of New Subjects

Jenna studied at Cardiff University before training to become a science teacher at the University of Bath specialising in Biology (although she loves teaching all three sciences at GCSE level!). Teaching is her passion, and with 10 years experience teaching across a wide range of specifications – from GCSE and A Level Biology in the UK to IGCSE and IB Biology internationally – she knows what is required to pass those Biology exams.