the economic problem
DESCRIPTION
The Economic ProblemTRANSCRIPT
Aquinas College Economics Department
The Problem
Economics seeks to answer the basic problems of what to produce, how should it be
produced and for who
ECON1
Aquinas College Economics Department
Limited Resources
In an economy there are limited resourcesThere are not enough resources to meet the needs and wants for everyoneThis is known as scarcity
Therefore choices have to be made!
Aquinas College Economics Department
Opportunity Cost
Due to the unlimited wants, each choice has a cost associated with itWhen using a resource for one choice you will forfeit another choice as you can’t use those resources for another object
This is known as opportunity cost
Aquinas College Economics Department
Example
£100m
New Hospital
New College
Take government spending for example
The government has £100 million to spend and it can either spend it on a new hospital or a new college. Should the government choose to build a hospital, the opportunity cost would be a new college. Likewise should they choose to build a college then the opportunity cost is a hospital
Aquinas College Economics Department
Example 2
£3
Coffee
Lunch
You have £3
You can either buy a coffee at Starbucks for £3 or you can buy lunch at McDonalds.
If you choose the coffee the opportunity cost is lunch.
The opportunity cost is only the next best alternative. Opportunity cost does not consider a broad range of alternatives.
Aquinas College Economics Department
Types of Good
Economic Good
Goods which involve opportunity cost as they are scarceMost goods are economic goods even air!
Free Good
Goods which have no opportunity cost