The Nature of the Economic Problem (Edexcel IGCSE Economics)

Revision Note

Written by: Lorraine

The basic economic problem is that resources are scarce
- In economics, these resources are called the factors of production
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.
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)
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

Last updated: 3 April 2024

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