Scarcity (Cambridge (CIE) O Level Economics)

Finite Resources and Unlimited Wants

• 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, 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

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

All Stakeholders in an Economy Face the Basic Economic Problem

Economic and Free Goods

• Economic goods are scarce in relation to the demand for them

  • This makes them valuable

  • Due to their value, producers will attempt to supply them in order to make a profit

  • Anything that has a price tag on it is an economic good, e.g. oil, corn, gold, trainers, watches and bicycles

• Free goods are abundant in supply

  • Due to this abundance, it is not possible to make a profit from supplying free goods

  • Drinking water has been a free good for thousands of years, but as the population increases and water sources become more polluted, it has become an economic good

  • E.g. Sunlight, the air we breathe, sea water