The Nature of the Economic Problem | O Level Economics 2281 & IGCSE Economics 0455 | Detailed Free Notes To Score An A Star (A*)

Lesson Objectives

• Finite Resources and Unlimited Wants
• Economic and Free Goods

Finite Resources and Unlimited Wants

• Needs is anything that is necessary for living. Without it, a normal human can not survive. For example, food, shelter and clothing.
  • However, these are basics
    • Just as much as required for survival
  • When we add other aspects more than the survival aspect to needs
    • They become needs
• Wants are things that are desires, but not essential for living.
  • For example, having basic shelter is need, but having a swimming pool in my home is a want.
  • Human wants are unlimited
    • They change with time
    • They grow with time
• The economics resources used to produce goods and services are limited
  • There is a limited amount of land, labor, capital and enterprise available at any given time.
  • Human wants will always exceed scarce (limited resources)
    • The reason is that wants grow with time
    • The resources, in general, shrink with time
    • Even if they don’t shrink
      • There will never be a situation where wants are less compared to the economic resources
• Scarcity is the fact that wants are unlimited (because they develop and change) while the resources required to meet those wants are limited.
  • The resources are required to produce the goods and services to meet those wants
• The economic problem refers to the fact that scarcity exists ever-lastingly.
  • The fact that wants will always exceed scarce resources
    • i.e. the undying nature of scarcity
    • Is the Economic problem

Economic and Free Goods

• Economic Goods
  • They require resources to produce
  • Any good that requires either land (natural resources), labor, capital or enterprise to make is an economic good.
  • Remember,
    • Production of economic good always has an opportunity cost
      • If exam asks what is an economic good, you need to mention this opportunity cost thing as well.
    • Why?
      • As we will study in the upcoming chapters, the same resources that are used to make an economic good could have been used to make another good instead of this one.
  • Thus, an economic good takes resources to produce and always has an opportunity cost to its production
• Free Good
  • Free goods are products that do not take resources to product and thus their production does not hinder the production of something else
    • As such, there is no opportunity cost of their production
  • One example is the air we breathe in
    • It does not take any resources to make
    • It does not have an opportunity cost.
  • Sunshine is another example
    • Takes nothing to make
    • No opportunity cost of production
• HOWEVER
  • Free goods can still have opportunity cost of consumption
    • Remember, if you consume all the air, other people will not be able to consume it.
    • Hypothetical situation, but realistically possible.
    • Thus, free goods have opportunity cost of consumption at a massive extent.
  • Though, usually, when we talk about economic goods and free goods, we are referring to opportunity cost of production only.