Short on time? This page is the recap. For explanations and worked examples, use the full study guide.
Recap
- Scarcity: resources are limited, but wants are unlimited. There is never enough to produce everything people want.
- Because most resources are scarce, individuals and societies must make choices.
- Every choice is a trade-off: using a resource one way means not using it another way.
- Every economy and every person faces scarcity, rich or poor. Time is scarce too.
- Economic resources (factors of production) are the inputs used to produce goods and services.
- A free good uses no scarce resources (air to breathe). A good with a zero price, such as a free school meal, is still scarce.
Key relationships
| Resource | Test to identify it | Example | Income (background) |
|---|---|---|---|
| Land | Comes from nature, used in its natural state | farmland, river water, oil, fish | rent |
| Labour | Human effort, physical or mental | a teacher’s work | wages |
| Capital | Made by people and used to produce | machine, van, factory, work laptop | interest |
| Entrepreneurship | Organises the other resources, takes risk, innovates | founder who risks her savings | profit |
| Scarcity | Shortage |
|---|---|
| Wants exceed resources | Buyers want more than sellers offer at the current price |
| Every economy, permanent | One market, usually temporary |
Assumptions behind the ideas
- Wants are treated as unlimited: when one is satisfied, others appear.
- “Capital” means physical capital, not money.
- The amount of each resource is fixed at a moment in time, even if it can grow over years.
- Measuring opportunity cost and drawing the PPC belong to Topic 1.2.
Mistakes to avoid
- Calling money capital. Money buys capital; it produces nothing itself.
- Mixing up scarcity and shortage. A sold-out shop shows a shortage.
- Saying rich countries escape scarcity.
- Treating a zero-price good as a free good.
- Limiting land to ground. Water, minerals and forests are land too.
- Calling every boss an entrepreneur. A salaried manager supplies labour; the entrepreneur bears the risk.
Quick self-check
VD is the valda, the currency of the fictional country Valdoria used in the study guide.
- Classify a fishing boat used by a Valdorian fishing firm. (Capital)
- Classify the fish in the lake before they are caught. (Land)
- A student has 10 free hours this week and wants 6 hours for a part-time job, 5 for revision and 3 for football. How many hours short is she, and what does this show? (4 hours short; scarcity of time forces her to choose)
- A bakery’s VD 8,000 bank balance: which resource? (None in itself; money is used to buy resources)
Next: practice questions.