The Economic Problem

1. 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

2. Aquinas College Economics Department
Limited Resources
In an economy there are limited resources
There are not enough resources to meet the
needs and wants for everyone
This is known as scarcity
Therefore choices have to be made!

3. Aquinas College Economics Department
Opportunity Cost
Due to the unlimited wants, each choice
has a cost associated with it
When 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

4. 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

5. 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.

6. Aquinas College Economics Department
Types of Good
Economic Good
Goods which involve
opportunity cost as they
are scarce
Most goods are economic
goods even air!
Free Good
Goods which have no
opportunity cost