Lesson 1

1.1 The basic economic

problem

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Resources are scarce

Natural Resources

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Machinery

Resources are scarce

Land

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People

Family A

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Family B

The creation of wants

Why do we want what we want?
Think of five things you want
Discuss with your partner the most
popular reasons for wanting goods and
services.
WANT

REASON

BICYCLE

MY FRIEND HAS ONE

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Production
Using inputs (resources) to make outputs (goods and
services) to satisfy the needs and wants of consumers

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Factors of production

Natural resources = land

Man-made resources = capital
Human skills and effort = labour
Business know-how = enterprise

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Consumption
Using up goods and services (products) to satisfy
consumers needs and wants

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So, we all have to make choices

There is a limited amount of resources such as raw materials,
machines, factories and skilled workers. But there are a number
of different ways in which they can be used.

CHOIC
E

C
CHOI

Resource allocation therefore involves deciding how best to use

scarce resources to satisfy as many needs and wants as possible
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Lesson 2
1.2 The basic economic
problem continued

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Choice
Similarly, people and governments only have a limited amount
of money but have many needs and wants to satisfy

$100bn

$100
Food?

Entertainment?

Clothing?

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Defence?

Health care?
Roads?

Opportunity cost
Opportunity cost is the cost of choice

What would you buy with 100RMB?

How should the government spend US$250 million?
What occupation will you choose when you finish your studies?
How should a new business invest US$20 million?
Should we conserve more natural resources?

and what are the next best alternatives foregone?

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The basic economic problem

Human wants are unlimited but resources are scarce

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