1.1.1 Understanding the economic problem: scarcity and choice

• What is the fundamental economic problem?

  Scarcity
• Opportunity cost is the value of the next best alternative forgone
• Match the economic system with its resource allocation mechanism:

  Market Economy ↔️ Supply and demand

  Planned Economy ↔️ Government control

  Mixed Economy ↔️ Combination of market and government

  Traditional Economy ↔️ Customs and traditions
• Scarcity forces individuals, businesses, and governments to make choices on resource allocation.
• What are the four main types of resources in economics?

  Land, labor, capital, raw materials
• The necessity for choice arises due to the trade-offs inherent in resource allocation
• Order the factors influencing choice from most to least direct impact:

  1️⃣ Opportunity cost

  2️⃣ Budget constraints

  3️⃣ Preferences

  4️⃣ Price
• Opportunity cost reflects both monetary and non-monetary factors.
• Give an example of opportunity cost for a business.

  Investing in new equipment
• Match the economic system with its key characteristic:

  Market Economy ↔️ Decentralized decisions

  Planned Economy ↔️ Government control

  Mixed Economy ↔️ Combination of market and government

  Traditional Economy ↔️ Social norms
• Scarcity forces decision-makers to allocate limited resources to satisfy unlimited wants
• What is an example of a government decision influenced by scarcity?

  Allocating tax revenue
• Economics studies how societies allocate scarce resources to satisfy unlimited wants and needs.
• Order the key aspects of scarcity:

  1️⃣ Limited resources

  2️⃣ Unlimited wants and needs

  3️⃣ Decision-making

  4️⃣ Opportunity cost
• What is the opportunity cost if someone chooses to buy a new outfit instead of attending a concert?

  Enjoyment at the concert
• Individual tastes and desires are referred to as preferences
• Budget constraints limit the choices available to individuals.
• Why must individuals, businesses, and governments make choices about resource allocation?

  Scarcity of resources
• Preferences are individual tastes and desires
• Budget constraints refer to the resources available to make choices.
• What is opportunity cost in economic decision-making?

  Value of next best alternative
• The price of goods and services is a key factor influencing choice
• Scarcity forces individuals and businesses to make trade-offs in resource allocation.
• Match the factors influencing choice with their explanations:

  Preferences ↔️ Individual tastes and desires

  Budget Constraints ↔️ Resources available

  Opportunity Cost ↔️ Value of next best alternative

  Price ↔️ Cost of goods or services
• What does opportunity cost reflect in economic decisions?

  Trade-offs due to scarcity
• Economic opportunity cost refers to the cost of resources used for one purpose rather than another
• Monetary opportunity cost is the direct financial cost given up when choosing one option.
• What does personal opportunity cost measure?

  Time, effort, or experience forgone
• Order the types of opportunity cost from most general to most specific:

  1️⃣ Economic

  2️⃣ Monetary

  3️⃣ Personal
• Economic systems govern the production, distribution, and consumption of goods and services
• How are resources allocated in a market economy?

  Supply and demand
• In a planned economy, the government controls resource distribution.
• A mixed economy combines market forces with government controls
• What is the basis of resource allocation in a traditional economy?

  Customs and traditions
• Economic systems reflect different approaches to addressing scarcity.
• Scarcity necessitates choices when allocating limited resources
• What type of resource allocation does an individual use when budgeting household expenses?

  Income allocation