1. AS OCR Economics – The Economic Problem
Markets in action

2. What is Economics about ?
CW The Economic Problem Date:
Learning objective:
Learn about the economic problem and the choices that we have to make as a result
STARTER:
How can we share out the sweets amongst the class? Which methods could we use? What are the advantages and disadvantages of each? l

3. Learning outcomes
Be able to describe what economists mean by ‘the economic problem’.
Be able to explain the term ‘factors of production’.
Be able to explain what is meant by opportunity cost.
Be able to explain how production possibility curves can be used to show scarcity, choices, and opportunity cost.

4. What is Economics about ?
Factors of production
To make these sweets, what resources would be needed? Make a list. l

5. Key words
The basic economic problem - the basic economic problem is that, because of out finite resources, we have to make choices about which of our infinite wants we satisfy.
Opportunity cost – what we give up when we make a choice.
Factors of production - the resources of LAND, LABOUR, CAPITAL that are used to produce goods and services.

6. What is Economics about ?
The basic economic problem
In the government spent their scarce resources like this? How would you allocate these resources?

7. What is Economics about ?
The basic economic problem
How should we allocate the resources devoted to health care?

8. What is Economics about ?
The production possibility frontier (p.p.f.)
A p.p.f. which shows the combinations of two or more goods and services that can be produced whilst using all of the available resources efficiently.
Units of food Units of clothing
(millions) (millions) 8m
7m m
6m m
5m m
4m m
3m m
2m m
1m m m
Units of food (millions)
Units of clothing (millions)

9. A production possibility curve
Units of food Units of clothing
(millions) (millions)
a m
7m m
6m m
5m m
4m m
3m m
2m m
1m m m
Units of food (millions)
Units of clothing (millions)

10. A production possibility curve
Units of food Units of clothing
(millions) (millions) 8m
b m m
6m m
5m m
4m m
3m m
2m m
1m m m
Units of food (millions)
Units of clothing (millions)

11. A production possibility curve
Units of food Units of clothing
(millions) (millions) 8m
7m m
c m m
5m m
4m m
3m m
2m m
1m m m
Units of food (millions)
Units of clothing (millions)

12. Increasing opportunity costsx 1 y 1 2
Units of food (millions) z 1
Units of clothing (millions)

13. Making a fuller use of resourcesx
Production inside
the production
possibility curve y
Food v O
Clothing

14. Growth in potential output
Food
Now O
Clothing

15. Growth in potential output
5 years’ time
Food
Now O
Clothing

16. Growth in potential and actual output
Food O
Clothing

17. Growth in potential and actual outputy x
Food O
Clothing

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