The basic economic problem

• Scarcity is permanent. Opportunity cost is singular. Capital is machines. A shift changes what you can do; a movement changes what you are doing.
• Whenever a question says “consumers, workers, producers and governments”, write four paragraphs, in that order, each naming a scarce resource and the choice it forces.
• Three rewards are promised in advance — rent, wages, interest. One is whatever is left — profit. That single difference is why enterprise is counted separately.
• Same resources, used differently → move along. Idle resources put to work → move from inside towards the curve. More or better resources → the curve itself moves.
• Expenditure answers “how much money left the account?” Opportunity cost answers “what did the economy not get?” They coincide only when the resources had a valuable alternative use.
• Review beats rereading, and spacing beats cramming. Three fifteen-minute sessions spread over a month hold this topic better than two hours the night before.

• 1.1.1 — I can define the basic economic problem, define scarcity, distinguish scarcity from a shortage, and give an example of the problem for a consumer, a worker, a producer/firm and a government.
• 1.1.2 — I can state the three resource-allocation questions in the syllabus wording — what to produce, how to produce, who to produce for — and explain what each one actually decides and why scarcity makes all three unavoidable in every economy.
• 1.1.3 — I can distinguish an economic good from a free good by opportunity cost, and explain why a good supplied free of charge is still an economic good.
• 1.2.1 — I can define land, labour, capital and enterprise and name the reward earned by each.
• 1.2.2 — I can give causes of a change in the quantity and in the quality of each of the four factors, and explain why a quality improvement can raise output without adding a single worker.
• 1.3.1 — I can define opportunity cost as the next best alternative forgone and illustrate it in at least four different contexts.
• 1.3.2 — I can explain how opportunity cost shapes the resource-allocation decisions of consumers, workers, producers/firms and governments.
• 1.4.1 — I can define a production possibility curve and draw one correctly: labelled axes, both intercepts, concave to the origin, with a reason for the concavity.
• 1.4.2 — I can interpret a point under, on and beyond the curve and name the economic condition each represents.
• 1.4.3 — I can describe a movement along the curve and calculate the opportunity cost it involves, including the opportunity cost per unit.
• 1.4.4 — I can give causes of an outward and an inward shift and explain each as a change in the economy's productive capacity.

Sorenza is a fictional country and every figure below is invented for learning. Section A of the real paper uses previously unseen information about a genuine economic situation; the skill being practised — use the data in front of you, do not import memorised examples — is identical.

• “Scarcity means there is a shortage.” Fix A shortage is excess demand at one price and disappears when the price rises. Scarcity is the permanent gap between finite resources and infinite wants, and no price change can end it. An economy with no shortages anywhere still faces scarcity.
• “The opportunity cost of the \(\$60\) ticket is \(\$60\).” Fix The money you spend is the expenditure, never the opportunity cost: the \(\$60\) has not been destroyed, it has been exchanged. The cost is what you would have had instead — name that good, service or use of time. Money you would have received is a different matter: wages given up by studying instead of working are a genuine opportunity cost, because they measure output you really did forgo.
• “Opportunity cost is everything you gave up.” Fix It is the single next best alternative. Listing three forgone options is not a fuller answer; it is a wrong one.
• “Anything given away free is a free good.” Fix The test is opportunity cost, not price. A free school meal uses food, fuel, kitchens and labour that had other uses, so it is an economic good at a zero price. A free good — air to breathe — uses no scarce resources at all.
• “Capital is the money a firm has in the bank.” Fix In economics, capital is human-made goods used to produce other goods: machines, tools, buildings, vehicles, software. Money buys capital; it is not itself a factor of production because on its own it produces nothing.
• “A movement along the PPC and a shift of the PPC are the same thing.” Fix A movement reallocates the resources the economy already has, so one good must fall for the other to rise. A shift changes the resources or technology available, so both goods can rise. Drawing one when the question describes the other does not make the answer approximate; it makes it a statement about a different event.
• A good given away free of charge is a free good. Fix A free school meal uses food, fuel, kitchen equipment and cooks' labour, all of which had alternative uses. Its opportunity cost is positive — perhaps the textbooks the same budget could have bought — so it is an economic good supplied at a zero price. Somebody pays; the taxpayer usually.
• Once a free good, always a free good. Fix Clean air in a heavily polluted city has to be produced, by filters, by regulation and by enforcement, all of which use resources. It now has an opportunity cost, so it has become an economic good. The same has happened to clean water in many regions.

• All candidates take the same two papers, both papers are compulsory, and every candidate is eligible for the full grade range A* to G. The syllabus is not tiered and both papers assess the whole grade range, so no section of this chapter is reserved for one group of candidates and no part of the subject content is optional. Examinations are available in the June and November series, and also in the March series in India.
• Across the qualification the weights are AO1 43% knowledge and understanding, AO2 47% analysis and AO3 10% evaluation. Analysis is the largest single component, which is why every explanation in this chapter is written as a chain rather than as a list.
• Topic 1 is assessed here the way every topic is: multiple-choice items drawn from the whole syllabus, some requiring a calculation or the reading of a diagram. What that rewards in this chapter is definitional precision — scarcity, opportunity cost, a free good — and the ability to read a labelled PPC. The practice items in this chapter's mixed challenge are written to that pattern.
• The short parts, using define, identify, state, give or calculate. These are AO1 and turn on precision, not length: give the definition in one accurate sentence, then one example only if the marks available suggest there is room for it.
• The middle parts, using explain or analyse: for example, analyse how an improvement in education affects an economy's production possibility curve. This is AO2, the largest objective in the qualification, and AO2 is credited for developed reasoning, so build a chain rather than listing causes.
• The final part of every Section B question, for example whether an economy should devote more resources to capital goods than to consumer goods. The syllabus states that part (d) is marked using levels of response, and that candidates must use clear and logical analysis to evaluate and develop a reasoned discussion of two sides. Use DEAL: define, explain one side, argue the other, land a judgement naming the condition that decides it.