1.

1 The nature of the economic problem

The nature of the economic problem

What do I need to know?

 Definitions and examples of the economic problem in the contexts of: consumers, workers
and government
 The difference between economic goods and free goods

Finite resources and unlimited wants

Goods - products that are tangible (i.e. they physically exist), e.g. a laptop or an ice cream
Service - products that are intangible (i.e. they don’t physically exist) e.g. a haircut or a maths lesson

There is a difference between goods and services and consumers want and goods and services they
need

Wants - goods and services not necessary for survival

Needs - goods and services required for survival

Examples of your needs Examples of your wants

Economists usually assume that consumers have unlimited wants. According to economists, people
would always want more or better goods and services.

However, many of the resources that are required to produce these goods and services are finite or
scarce.

Finite resources - non renewable resources that will eventually run out
Scarcity - a situation in which something is limited in supply

List three examples of finite resources below:

1)
2)
3)

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1.1 The nature of the economic problem

The economic problem

The economic problem is that there are finite resources and unlimited wants. This means that there
are not enough resources to produce all the goods and services to satisfy consumers’ unlimited
wants.

This means that choices have to be made about how to best allocate the economy’s scarce
resources.

Give an example of when each of the following has to make a choice due to scarce resources:

A consumer

A worker

A producer/
business

A government

Economic goods and free goods

Economic goods - goods that are produced using scarce resources and sold for a price (producing
economic goods results in an opportunity cost)
Free goods - goods that do not suffer from scarcity and therefore do not have a price (producing free
goods doesn’t result in an opportunity cost)

Examples of economic goods Examples of free goods