Part 1 The basic economic problem

Part 1 The basic economic problem

Activities: Guidance and answers
Activity 1.1 Needs and wants
1 The needs they have in common are food, clean water, shelter, security.
2 The household in B will not be able to satisfy all its needs.
3 Wants of family A would include a nice home and garden, many different
household goods, a car, holidays, good education and health care, a good
choice of restaurants, sports and leisure activities, etc.
4 Wants of family B would included a better home, more food, household
goods, good education and health care.
5 There are not enough resources to produce all the goods and services
everyone needs and wants.
6 Our needs have to be satisfied in order to survive. Our wants are good to have
but are not necessary to preserve life.
7 Human needs and wants will increase over time as the world population grows.

Activity 1.2 What do we need and what do we want?

Your completed table may look like the following.

Need Want Reason

Bread Bread is food

Televisions Televisions provide entertainment but are not essential for survival

Water Water is essential for human survival

Shelter Modern house Some form of shelter is essential for survival, but many people aspire to live in
large, modern family homes

Clothing/shoes Clothing/shoes Basic forms of clothing provide the human body with warmth and protection
from the sun and extreme weather. However, many people want many different
fashionable clothes

Car Cars are a luxury. Some people in developed countries, however, view cars as
essential for travel to and from work, and for other activities

Jewellery Jewellery is a luxury

Video and audio discs These satisfy wants for entertainment

Newspapers Non-essential

Computer Non-essential

Books Non-essential

Matches While the ability to light and start fires is essential for many people – for cooking
and warmth – matches are not essential to create fire although extremely helpful

Meeting our needs for food, clean water and shelter is essential to our survival.
Satisfying our wants gives pleasure but is not essential to human survival.
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Activity 1.3 What’s the big problem?
Article
Local anger as an area of ancient woodland is
sold to a property developer to build new homes benefit of the woodland will be lost forever if
China closes mines and warns its rare-earth
minerals are running out
BMW halts car production
Building new schools ‘must be top priority’ for
government
‘One meal a day’: Consumers on low incomes
are being forced to choose between food and
paying power bills
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Part 1 The basic economic problem
How does it illustrate the basic economic
problem?
Land is scarce and has alternative uses. The
it is cut down to build homes. However, people
need homes to live in to provide shelter. Keeping
the woodland will mean the benefit of new
homes will be foregone.
Rare-earth minerals are non-renewable natural
resources. They are finite in supply and no more
will be available once they have been used
up in the production of other goods to satisfy
human needs and wants. Future generations
may therefore have to go without many of the
products they are used in.
BMW had to stop production of its cars when
one of its suppliers could not supply it with
steering systems. This shows that cars are
economic goods. Scarce resources must be
used up in their production. Cars can only
be produced and wants for cars satisfied if
sufficient resources are available to do so.
Population growth is increasing human needs
or wants for education. More resources will
be required to increase the number of school
places and teachers. Because resources are
scarce, this means reallocating some from other
uses. Providing more school places therefore
means giving up some other goods or services.
Because resources are scarce, consumers cannot
satisfy all their needs and wants for goods
and services. Some consumers on low incomes
cannot even satisfy all their needs. They
must choose how to allocate them between
purchases of different goods and services to
meet their needs. The more they spend on
power for lighting and heating, the less they
will be able to spend on food. The opportunity
cost of meeting their needs for power is the
benefit they forego from eating less food.
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 Part 1 The basic economic problem

Activity 1.4 Classifying resources

1

Land Labour Capital

Oil Advertising people Telephones
Cotton Ship’s crew Shops
Fertile soil Bank clerks Lorries
Orange trees Orange pickers Printing machines
Oranges Packaging designers Factory buildings
Coal Accountants Insecticide sprays
Water Warehouse workers Squeezing machines
Wood Shop assistants Power stations
Lorry drivers Roads
Calculators

2 Some of the resources used in the production of cars might include the following.

Land Labour Capital

Oil (for plastics, paints and lubricants) Designers Factories
Sand (for glass) Production line workers Offices
Rubber (for tiles, tubes and seals) Mechanics Computers
Metal ores Engineers Industrial robots
Leather Car sales personnel Paint-spraying equipment
Cotton Accountants Trucks
Marketing personnel Spanners
Drills

Activity 1.5 Getting mobile

Resource Factor of Factor Factor mobility? Reasons for factor mobility?
production? reward?
Computer Labour Wages Quite mobile Although they have very specific skills and cannot
programmers change occupation easily, computers are used in so
many different ways in different firms and industries
A combine Capital Interest Geographically mobile Can only be used to harvest crops but can be moved
harvester from one field to another
Cotton Land / natural Rent Immobile once planted It is possible to plant seeds in different locations but not
Mobile once harvested where it is too cold, too hot or too wet. However, once
planted they are immobile until they are harvested.
Thereafter the raw cotton can be transported by road,
rail or ship to many different locations to be processed
for use in the production of clothes, fishing nets, coffee
filters, book binding, paper and other products
An oil Capital Interest Immobile Can only be used for drilling and extracting oil in a
platform fixed location
A woodland Land / natural Rent Immobile The woodland is immobile but harvested wood is
mobile. It can be used in the production of many
different products in many different locations.

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 Part 1 The basic economic problem

Activity 1.6 The next best thing

You many have many different next best alternatives. Here are ours.
What I have just bought What I could have bought instead
Large flat-screen television A video projector
Four-bedroomed house Four-bedroomed apartment
Cakes and sweets Ice cream
A ticket to the World Cup Final A ticket to the Cricket World Cup Final

Activity 1.7 Free to choose?

1 Although not all children in Bangladesh are poor and clearly some European
children also live in poverty and lack basic goods and amenities, the most
likely answers are as follows.

Free to choose? Children in Bangladesh European children

Can go to a soccer match ✘ /
Can eat in a restaurant ✘ /
Can catch their own food / ✘
Can drive a car ✘ /
Can visit foreign countries ✘ /
Can own their own house ✘ /
Can obtain medical help when needed ✘ /
Can receive an Economics education ✘ /
Can receive a daily paper ✘ /
Can be independent ✘ /
Can receive radio and television ✘ /

2 Most people in European countries enjoy much higher standards of living

than many people in Bangladesh. European economies are larger and income
per head much higher. In Bangladesh many people have to survive on very
low incomes and what they can produce for themselves. Bangladesh is one
of the world’s most densely populated countries: resources are very scarce
but they are also not used as productively as they could be. About a third of
the country also floods annually during the monsoon rain season, hampering
economic development.

Activity 1.8 The cost of making choices

1 The opportunity cost to the factory owners is 400 glass jars foregone.
2 The opportunity cost to the factory workers is the benefit associated with
working on the farm instead.
3 The opportunity cost to society is the farmland, the peace and quiet, and clean
air foregone.

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 Part 1 The basic economic problem

Activity 1.9 Shift it!

1
Article Increase in resources and Decrease in resources and
productive capacity? productive capacity?
Many developing countries ‘Richer’ developed countries – Developing countries – loss of
are losing their better- inward migration of skilled skilled labour and entrepreneurs
educated nationals to richer labour and entrepreneurs due to outward migration
countries …
Approximately 75 percent of Decrease in land … ‘due to
land in Uganda could be used environmental degradation
for agriculture … through soil erosion and nutrient
loss’.
Mass migration to England … Increase in migrant labour
New oil reserves ... Increase in land/natural
discovered resources for Canada, Norway,
Cuba, Brazil, Russia and Israel

2 A national economy that has more resources available than previously and
has increased its productive capacity should be able to produce more goods
and services. However, its total output will not increase or will not increase
by as much as it could if the additional resources are not used or are not
allocated to their best or most efficient uses. As a result, the economy will be
producing at a point below its new PPC.

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