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The first topic gives an introductory overview of the study field of Economics. Make sure that you
can define the different concepts introduced in this topic. They (and the concepts we are going to
introduce in the rest of the topics) form the basic building blocks of your understanding of
Economics – AND your ability to “speak Economics”.
In the introductory paragraphs of Topic 1, the following statement is made: “Economics is about
how we make choices as individuals and as a society”. The story goes further, “we have to make
choices because of scarcity”.
Scarcity
Scarcity is about the imbalance between the long list (unlimited) wants and needs and limited
resources (the four factors of production).
Thus we have to choose (make choices) and every choice we make involves opportunity cost.
Opportunity cost
Opportunity cost is the value to the decision-maker of the best alternative that is given up.
Societies must answer 3 key questions when addressing the scarcity problem.
Land – rent
Labour – wages
Capital – interest
Entrepreneurship – profit