The nature of the basic economic problem Worksheet

Scarcity occurs when there are insufficient resources to satisfy all human wants and needs (1 mark). This means choices must be made about how to use limited resources (1 mark).

Any two appropriate examples, such as: oil (1 mark), coal (1 mark), land (1 mark), skilled workers (1 mark), machinery (1 mark). Award 1 mark for each correct example.

Infinite wants means that human desires are unlimited (1 mark). People always want more goods and services than can be produced with available resources (1 mark).

An economic good is scarce and has a price because resources are used to produce it (1 mark). A free good is not scarce, has no opportunity cost and no price, such as air or sunlight (1 mark).

Any appropriate example such as: air (1 mark), sunlight (1 mark), seawater in the ocean (1 mark), wind (1 mark). Award 1 mark for one correct example.

Resources are finite or limited (1 mark), but wants are infinite, so choices must be made about how to use scarce resources to satisfy the most important wants (1 mark).

a) Scarcity (1 mark) or finite resources and infinite wants (1 mark). b) The government has finite or limited financial resources of 500 million pounds (1 mark). It faces competing wants for healthcare and education, so it must make a choice about how to allocate its scarce resources (1 mark).

The farmer has a finite resource of 100 hectares of land (1 mark). She cannot use the same land for both wheat and cattle at the same time (1 mark). She must make a choice about how to allocate her scarce land to satisfy her wants, such as maximising profit or meeting market demand (1 mark).

a) The student has finite resources of 20 pounds (1 mark), but her wants total 37 pounds, which exceeds her available money, so she must make choices (1 mark). b) Any appropriate decision such as: whether to buy the book or go to the cinema (1 mark), whether to buy lunch or the book (1 mark), which want to satisfy first (1 mark). Award 1 mark for one sensible decision.

Workers or labour (1 mark). Any other appropriate resource such as: factory space (1 mark), machinery (1 mark), time (1 mark), raw materials (1 mark). Award 1 mark for each correct finite resource identified.

Air is not scarce in most situations (1 mark) and does not require resources to produce or make available (1 mark), so it has no opportunity cost and no price (1 mark). Bottled water requires resources such as labour, machinery and materials to collect, purify, bottle and transport (1 mark), making it scarce and giving it an opportunity cost and a price (1 mark). Award up to 4 marks for a clear explanation covering scarcity, resource use and pricing.

The basic economic problem exists because resources are finite whilst wants are infinite (1 mark). Even wealthy economies have limited resources such as land, labour, capital and natural resources (1 mark). As income rises, people's wants tend to increase, with demands for better healthcare, education, technology and luxury goods (1 mark). Wealthy economies still face choices about how to allocate resources between competing uses such as defence, infrastructure or welfare (1 mark). No economy can produce everything its population wants because productive capacity is always limited (1 mark). Therefore, all economies must make resource allocation decisions to determine what to produce, how to produce and for whom to produce (1 mark). Award up to 6 marks for a developed analysis with clear reasoning.

Originally, the river water may have been a free good if it was abundant and safe to drink without treatment (1 mark), meaning it had no opportunity cost and no price (1 mark). Once polluted, the water requires resources such as labour, technology and chemicals to purify it (1 mark). This treatment process uses scarce resources that could have been used for other purposes (1 mark), creating an opportunity cost and transforming the water into an economic good with a price (1 mark). Award up to 5 marks for a clear explanation linking the change in circumstances to the characteristics of free and economic goods.

The basic economic problem is unlikely to ever be solved because human wants are infinite (1 mark). Even if resources increased significantly through technological progress or discovery of new materials (1 mark), people would develop new wants for better quality goods, new technologies or improved services (1 mark). Historical evidence shows that as societies become wealthier, consumption patterns change and new desires emerge (1 mark). However, it could be argued that if people limited their wants voluntarily or if technology advanced sufficiently to make production almost costless (1 mark), scarcity might be reduced, though this seems unrealistic given human nature and physical limits (1 mark). Overall, the problem persists because the gap between finite resources and infinite wants cannot be closed (1 mark). Award up to 6 marks for a balanced evaluation with reasoning on both sides and a supported conclusion.

University education would not become a free good even if students do not pay fees directly (1 mark). Free goods have no opportunity cost and require no resources to provide (1 mark). University education requires significant scarce resources including qualified lecturers, buildings, equipment and materials (1 mark). These resources have alternative uses, such as being employed in schools, hospitals or private sector jobs (1 mark), creating an opportunity cost (1 mark). Although individual students might not pay fees, society pays through taxation (1 mark), meaning the education still has a price, just collected differently (1 mark). Therefore, university education remains an economic good because it is scarce, uses resources with opportunity costs, and has a price to society even if not to individual students (1 mark). Award up to 8 marks for a thorough analysis demonstrating clear understanding of the distinction between free and economic goods, with well-developed reasoning and a justified conclusion.