Cambridge IGCSE Economics

## The basic economic problem The **basic economic problem** is that human wants are unlimited while the resources available to satisfy them are limited. People always want more goods and services than can be produced from the land, labour, capital and enterprise that exist at any time. This shortage relative to wants is called **scarcity**, and it is the reason economics exists: because not everything can be had, choices have to be made and something is always given up. Scarcity affects every kind of decision-maker, though it looks different for each. | Decision-maker | How scarcity shows up | |---|---| | Consumers | A limited income cannot buy everything they would like, so they choose between, for example, a phone upgrade and a holiday | | Workers | A limited number of hours in the day has to be split between paid work, study and leisure | | Producers (firms) | Limited funds, machinery and staff mean a firm must choose which products to make and how much of each | | Governments | Tax revenue is limited, so spending more on health care leaves less for defence, schools or roads | ### The three basic economic questions Because resources are scarce, every society has to answer three questions. - What to produce: which goods and services, and in what quantities, for example more food or more cars, more hospitals or more roads. - How to produce: which methods and which combination of resources, for example a labour-intensive method with many workers, or a capital-intensive one…