Scarcity: the basic economic problem Cambridge IGCSE Business Studies revision
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In plain words
There is never enough of everything to go round. People's wants have no limit, but the resources for making things (land, workers, machines) do. That gap is called scarcity, and it is the basic economic problem.
Because of scarcity, every person, firm and government has to choose. A whole economy has to answer three questions: what to make, how to make it, and who gets it.
4 things to know
- The basic economic problem: resources are finite (limited) but wants are infinite (unlimited).
- Scarcity forces a choice on consumers, workers, firms and governments alike.
- The three questions of resource allocation: what to produce, how to produce, and for whom to produce.
- An economic good takes resources to make, so it is scarce. A free good, such as air or sunlight, is so plentiful that supplying it uses no resources.
Tips and tricks
- "Free" in economics does not mean "costs no money". A place at a state school may have no price, but it uses teachers and buildings, so it is an economic good.
- Asked for an example of the economic problem? Say who is choosing, what their limited resource is, and what they go without.
It lands in your notebook with its questions as flashcards.
Scarcity: the basic economic problem: 5 questions and answers
These are the quiz’s questions. Do the quiz first, then come back here for the ones that got you.
What is the basic economic problem?
That is scarcity. The others are problems an economy can have, but not the basic one.
Which of these is a free good?
Sunlight needs no resources to supply. The others may have no price to the user, but they use scarce resources.
Which is NOT one of the three basic questions of resource allocation?
What, how and for whom.
A family can afford a holiday or a new car, but not both. This is an example of
Their income is limited and their wants are not, so they have to choose.
Why does scarcity affect rich countries as well as poor ones?
Wants are unlimited, so no amount of resources is ever enough.
Quiz
5 questions
Tap an answer and you’ll see straight away whether it’s right, and why.
Worksheet
3 questions, 7 marks. Write your answers on paper, then check them.
Scarcity: the basic economic problem
Cambridge IGCSE Business Studies 0450 · 7 marks · papermunch.org
Name ______________________________ Date ______________
Define the basic economic problem.[2]
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Wants are unlimited but the resources available to satisfy them are limited, so choices have to be made.
Explain why sea water at the coast is a free good but bottled drinking water is an economic good.[2]
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Sea water is so plentiful there that no resources are needed to supply it. Bottled water needs labour, machinery and transport, so it is scarce.
A government has enough money to build either a hospital or a motorway. Explain how this shows the basic economic problem.[3]
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Its resources (tax revenue) are limited, but the wants of the country are unlimited. It cannot have both, so it must choose, and choosing one means going without the other.
Answers: Scarcity: the basic economic problem
- 1. Wants are unlimited but the resources available to satisfy them are limited, so choices have to be made.
- 2. Sea water is so plentiful there that no resources are needed to supply it. Bottled water needs labour, machinery and transport, so it is scarce.
- 3. Its resources (tax revenue) are limited, but the wants of the country are unlimited. It cannot have both, so it must choose, and choosing one means going without the other.