CAIE Economics (9708)
(UNIT 1) CH.1 Scarcity, Choice and Opportunity Cost
• The Fundamental economic problem = scarcity
• Explanation of the need to make choices
• Explanation of unlimited wants
• Reason for the growth of unlimited wants
• Scale of preferences, luxury goods, development of wants
• Definition of opportunity cost
• 3 economic questions for allocation of resources
Economic Problem
Economic problems arise due to resources (inputs) being scarce (scarcity of resources) whilst
people's wants are unlimited. In short: Limited resources exceeding unlimited wants = Basic
economic problem today.
Example; for individual on low income their want would be a car. The economic problem here is
that they are unable to due to the lack of input they have to obtain the car which is (the
individual's income).
Due to this economic problem, everyone today has to make a choice, in other words make an
opportunity cost. (Opportunity cost: the choice of the next best alternative forgone)
Unlimited Wants
Basic needs have to be satisfied in order to live. Example; water, housing, food etc. While as
wants exist to improve the quality of life, items that seem less essential.
Reasons why Wants keep growing:
• Scale of Preferences – Luxuries (wants; cars, television), consider only by one person
while as another may consider this essential due to scale of preferences. Each person
has a different scale of preference.
(UNIT 1) CH.1 Scarcity, Choice and Opportunity Cost
• The Fundamental economic problem = scarcity
• Explanation of the need to make choices
• Explanation of unlimited wants
• Reason for the growth of unlimited wants
• Scale of preferences, luxury goods, development of wants
• Definition of opportunity cost
• 3 economic questions for allocation of resources
Economic Problem
Economic problems arise due to resources (inputs) being scarce (scarcity of resources) whilst
people's wants are unlimited. In short: Limited resources exceeding unlimited wants = Basic
economic problem today.
Example; for individual on low income their want would be a car. The economic problem here is
that they are unable to due to the lack of input they have to obtain the car which is (the
individual's income).
Due to this economic problem, everyone today has to make a choice, in other words make an
opportunity cost. (Opportunity cost: the choice of the next best alternative forgone)
Unlimited Wants
Basic needs have to be satisfied in order to live. Example; water, housing, food etc. While as
wants exist to improve the quality of life, items that seem less essential.
Reasons why Wants keep growing:
• Scale of Preferences – Luxuries (wants; cars, television), consider only by one person
while as another may consider this essential due to scale of preferences. Each person
has a different scale of preference.
