The Basic Economic Problem

1.1.1 The economic problem

a) The problem of scarcity – where there are unlimited wants and finite resources, leading to the need to make choices.

b) Opportunity cost and its effect on economic agents (consumers, producers and government). c) The use of diagrams to show production possibility curve. d) Production possibility curve diagram should be used to show: • the maximum productive potential of an economy • fully employed or unemployed resources • opportunity cost • positive or negative economic growth that shifts the production possibility frontier (PPF) outwards and inwards • possible and unobtainable production. e) Possible causes of positive or negative economic growth. 1.1.2 Economic assumptions a) The underlying assumptions that: • consumers aim to maximise their benefit • businesses aim to maximise their profit. b) Reasons why consumers may not maximise their benefit: • consumers are not always good at calculating their benefits • consumers have habits that are hard to give up • consumers sometimes copy others’ behaviour. c) Reasons why producers may not maximise their profit: • producers may have managers that revenue maximise or sales maximise • producers may prioritise caring for customers • producers may complete charitable work.