IGCSE 0455 Section 1 Notes

Chapter 1_The Nature of the Economic Problem

Learning Objectives (from the 0455 syllabus):

 Be able to explain the study of Economics.
 Be able to define and give examples of the Economic problem in contexts of consumers;
workers; producers; and governments.
 Explain the difference between economic goods and free goods.

Introduction to this chapter:

I have one question for you. Do you have everything you would like to have? The answer is
likely to be ‘no’. Another question for you- why can’t we have everything we would like to
have? This is a very interesting question that we will discover in this chapter.

Key Vocabulary:
*Wants: Desires for goods and services (is a key concept in Section 2).
*Resources: Factors used to produce goods and services (will be further discussed in Chapter
two).
*The Economic Problem: Unlimited wants exceeding finite resources.
*Scarcity: A situation where there are not enough resources to satisfy everyone’s wants.
*Economic Good: A good which requires resources to produce and therefore has an opportunity
cost.
*Free Good: A good which does not require any resources to produce and therefore doesn’t have
an opportunity cost.

1.0_What is Economics?
Economics (classified into microeconomics and macroeconomics which will be further discussed
in chapter five) is the social science that studies the choices of people, businesses, governments,
and societies make as they cope with scarcity. Economists study how people make these kinds of
decisions and analyze their decision-making process, and the consequences.

1.1_Finite Resources and Unlimited Wants

The fundamental economic issue, which is often labelled as The Economic Problem, is scarcity,
which is the inability to satisfy all the wants with the limited resources we have. The Economic
Problem can never be resolved as people’s wants continues to grow while the resources become
scarcer. This is where the study of Economics come into play; we study how resources are
allocated so that they are used at their most productive extent at all times.
IGCSE course selection is a good example of The Economic Problem. Back in Y9, I spent over a
month thinking about whether I should take Business Studies or Music for my IGCSE Option 3
course. It is not possible for me to take both courses as time is limited in supply. My desire to
take both Business Studies and Music, represents the unlimited want, and the limited time I have
before the IGCSE exam, represents the finite resources.

1.2_Economic Goods and Free Goods

All goods (resources), no matter if they are economic goods or free goods, are scarce. That is,
there is nothing that is available to us in an unlimited amount.
1.3_The Seemingly Unlimited Resources
 Water
Look up the news and answer this one question: why would people suffer from lack of
sufficient water if the supply of water is unlimited?
 Air (oxygen)
We only have so much air in our atmosphere. If you fly high enough to the point where it
is difficult to breathe, you could even die from lack of oxygen.
 Sunlight
Go live in the North Pole for a year. Half of the year you will suffer from no sunlight.
 Humans
We can literally count the number of human beings on Earth if we wanted to. If humans
are unlimited in supply this would not be the case.
 Outer space
Yes, outer space is unlimited. Technically speaking, however, the answer is no. We do
not take outer space into consideration as it isn’t a useful resource for us today.