Edexcel AS Economics

Introduction to Markets and Market Failure

1.1 Nature of Economics
1.1.3 The Economic Problem
Syllabus 1.1.3 – The Economic Problem
 The problem of scarcity – where there are unlimited
wants and finite resources
 The distinction between renewable and non-renewable
resources
 The importance of opportunity costs to economic agents
(consumers, producers and government)
What four things de we really
need to survive?
 https://www.youtube.com/watch?v=PJvosb4UCLs
 Castaway – Tom Hanks
 https://www.youtube.com/watch?v=hXzNByMuJZM
 And the obvious follow up during the Superbowl (the
most expensive advertising slots in the world! – why?)
Starter questions (7 minutes)
Define the following terms:
a) Unlimited/infinite wants
b) Limited/finite resources
c) Needs
d) Absolute poverty
e) Relative poverty
f) Scarcity
g) Opportunity cost

1. What is the economic problem?

2. How can we apply these ideas to the housing crisis?
 The three second game
 Heads and tails: (3 minutes to match the head to the tail)
Heads Tails
1) Unlimited/infinite a) The factors of production available to us are limited, and
wants we have to make choices as to how we use them.
2) Limited/finite b) When income levels of a people within a country is below
resources 60% of the national average.
3) Needs c) People always want more than they have, a bigger house, a
faster car.
4) Absolute poverty d) The four basic daily things we need to survive, food, water,
shelter and clothing.
5) Relative poverty e) The next best alternative foregone (Given up), when an
economic decision is made.
6) Scarcity f) When people do not have the money to buy all the basic
daily needs of food, water, shelter and clothing.
7) Opportunity cost g) When the limited resources are insufficient to meet the
unlimited wants of the people.
 The three second game
 Heads and tails: (3 minutes to match the head to the tail)
Heads Tails
1) Unlimited/infinite a) The factors of production available to us are limited, and
wants we have to make choices as to how we use them.
2) Limited/finite b) When income levels of a people within a country is below
resources 60% of the national average.
3) Needs c) People always want more than they have, a bigger house, a
faster car.
4) Absolute poverty d) The four basic daily things we need to survive, food, water,
shelter and clothing.
5) Relative poverty e) The next best alternative foregone (Given up), when an
economic decision is made.
6) Scarcity f) When people do not have the money to buy all the basic
daily needs of food, water, shelter and clothing.
7) Opportunity cost g) When the limited resources are insufficient to meet the
unlimited wants of the people.
Vulture Boy
1. What does this boy need?
2. What does this boy want?
3. What is the difference between a need and a want?
What four things de we really
need to survive?
And your iphones?
 A need or a want? Justify your answer.
So what is economics?
 Economics is the study of how to meet the needs and
wants of the population with the limited resources that
we have available.
You represents a company
 Your company has choices to make:
 Decide upon a product and explain
a) What you are going to produce…
b) How you are going to produce it…
c) Who you are going to produce it for…
For those that can’t think of an idea
 MCQ’s – What, how, for whom?
The central purpose of economic activity is
 a) To create maximum profit.
 b) The satisfaction of needs and wants.
 c) To achieve economic efficiency.
 d) To save scarce resources.

Features of the fundamental economic problem include

 a) Both unlimited resources and many wants.
 b) Both trade-offs and conflicting objectives.
 c) The provision of goods with no opportunity cost.
 d) Both scarce resources and limited wants.

The fundamental economic problem facing all societies is

 a) What, how and for whom goods and services should be produced.
 b) The existence of unemployed resources.
 c) A significant divergence between social and private costs of production and consumption.
 d) Inequalities in the distribution of income and wealth.

The central purpose of economic activity is

 a) To create maximum profit.
 b) To achieve economic efficiency.
 c) The satisfaction of needs and wants.
 d) To save scarce resources.
MCQ’s – What, how, for whom?
The central purpose of economic activity is
 a) To create maximum profit.
 b) The satisfaction of needs and wants.
 c) To achieve economic efficiency.
 d) To save scarce resources.

Features of the fundamental economic problem include

 a) Both unlimited resources and many wants.
 b) Both trade-offs and conflicting objectives.
 c) The provision of goods with no opportunity cost.
 d) Both scarce resources and limited wants.

The fundamental economic problem facing all societies is

 a) What, how and for whom goods and services should be produced.
 b) The existence of unemployed resources.
 c) A significant divergence between social and private costs of production and consumption.
 d) Inequalities in the distribution of income and wealth.

The central purpose of economic activity is

 a) To create maximum profit.
 b) To achieve economic efficiency.
 c) The satisfaction of needs and wants.
 d) To save scarce resources.
Every decision we make has a consequence!
 What choices do we have?
1. You have £10, do you go to the cinema or McDonalds?
Explain your choice.
2. A family has £2000, what should it spend it on? Why?
3. A business needs new machinery, and an advertising
campaign, each cost £20,000, they only have £20,000.
Which do they choose and why?
4. The government has £1.5billion. It has to choose
between defence spending or boosting the NHS. Which
should it do? Why?
 Using one of these examples, complete the following
sentence. “The opportunity cost of…..is….because…..”
Scarcity, Choice and the allocation of Resources
 Fill in the blanks:
 The fundamental economic problem is ______ and that it
results from limited ________ and _______ wants.
 Scarcity means that _______ have to be made about how
________ resources are allocated between different uses.
 Choices have an _______ cost.

1. Define Opportunity Cost

2. Give an example of opportunity cost for an individual, a
firm and the local government.
Syllabus 1.1.3 – The Economic Problem
 The problem of scarcity – where there are unlimited
wants and finite resources
 The distinction between renewable and non-renewable
resources
 The importance of opportunity costs to economic agents
(consumers, producers and government)