"GCSE Economics Revision: The Basic Economic Problem—How Scarcity Shapes Your...

Understanding the Basic Economic Problem

The basic economic problem is a fundamental concept in GCSE Economics. It refers to the issue of scarcity—how limited resources are unable to satisfy unlimited wants. This concept underpins many exam questions and is essential for structuring high-scoring answers.

What Is Scarcity?

Scarcity means that resources (such as land, labor, and capital) are finite, while human wants are infinite. Because of this, choices must be made about how to allocate resources efficiently.

Key Elements of the Basic Economic Problem

• Limited Resources: Only a certain amount of resources are available.
• Unlimited Wants: People always desire more goods and services than can be produced.
• Choice: Decisions must be made about what to produce, how to produce, and for whom to produce.
• Opportunity Cost: The next best alternative forgone when a choice is made.

How Scarcity Shapes Exam Answers

Examiners look for clear explanations of how scarcity leads to choices and opportunity costs. When answering questions, always:

1. Define key terms like scarcity and opportunity cost.
2. Explain how scarcity forces individuals, firms, and governments to make choices.
3. Use examples, such as choosing between spending on healthcare or education.
4. Discuss the consequences of these choices, referencing opportunity cost.

Tip: Use real-world examples to show your understanding of how scarcity affects economic decisions.

Sample Exam Question Approach

Question: "Explain how the basic economic problem of scarcity leads to opportunity cost."

• Start by defining scarcity and opportunity cost.
• Describe how limited resources mean not all wants can be satisfied.
• Give an example, such as a government choosing between building a new school or a hospital.
• Conclude by stating that the opportunity cost is the benefit lost from the option not chosen.

Further Revision Resources

• BBC Bitesize: The Basic Economic Problem
• Tutor2u: The Basic Economic Problem