Scarcity Notes PDF

YOUR NOTES 1.1.1 Scarcity  Finite Resources & 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 ess...

YOUR NOTES 1.1.1 Scarcity  Finite Resources & 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 Consumers 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 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 Workers may want a more comfortable & safer working environment but their employers may not have the resources to create it Government 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. E.g. If they choose to provide national healthcare, fewer Doctors will be available to work in private healthcare Economic & Free Goods YOUR NOTES 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 & water sources become more polluted, it has become an economic good E.g. sunlight, the air we breathe, sea water  Exam Tip In Paper 1, MCQ will explore your understanding of a free good. Often you will be presented with a list of goods which have been given to you or provided to you by the government, free of charge (e.g. government education that you do not pay for). Remember to differentiate between something you have received freely - and something that is abundant in supply. Then it is easy to determine the answer