Cambridge International AS and A Level Economics: Scarcity, choice and methods (9708) – Revision Notes

These notes condense sections 1.1 and 1.2 of the Cambridge International AS & A Level Economics 9708 syllabus for examination in 2026, 2027 and 2028. They are AS Level content (topic 1), assumed knowledge for A Level Papers 3 and 4. Full explanations are in the study guide. Test yourself with the practice questions, the free diagnostics, the course hub and the printable checklist. All figures below are invented.

Key definitions

Term	Definition
Scarcity	Unlimited wants set against limited resources. The fundamental economic problem
Choice	Selecting one use of scarce resources, which rules out others
Opportunity cost	The sacrifice made by a choice, valued as the best option passed over
What to produce	Which goods and services, in what quantities
How to produce	Which method, for example labour-intensive or capital-intensive
For whom to produce	How output is shared among people
Social science	A study of human behaviour that uses scientific methods
Positive statement	A statement of fact that can be tested against evidence
Normative statement	A value judgement about what ought to be
Ceteris paribus	All other things being equal
Short run	One or more factors of production cannot be changed
Long run	All factors can vary
Very long run	Technology and the quality of factors can also change

1.1 Scarcity, choice and opportunity cost

Scarcity (1.1.1)

• The root of all economic problems. It exists for rich and poor, and for time as well as money.
• Scarcity is permanent. A shortage is a market event at one price. Do not mix them up.

Choices (1.1.2)

Decision-maker	Typical choice	Constraint
Individual	What to buy, how long to work	Income and time
Firm	What to produce, what to invest in	Finance and available inputs
Government	Health, education or defence spending	Tax revenue and borrowing

Opportunity cost (1.1.3)

Method:

1. Write down the options that were really open.
2. Order them from most to least valuable.
3. Pick the highest-ranked option you did not take. Do not sum the rest.
4. Give the answer in sensible units: goods, money or time.

Worked reminder (a ratio): a farm can grow 50 tonnes of wheat or 20 tonnes of barley.

Opportunity cost of 1 tonne of barley = 50 / 20 = 2.5 tonnes of wheat
Opportunity cost of 1 tonne of wheat  = 20 / 50 = 0.4 tonnes of barley
Grow 8 tonnes of barley: wheat forgone = 8 x 2.5 = 20, wheat left = 30

Worked reminder (a budget): a government has 90 million. A bridge costs 30 million and a clinic costs 6 million.

Opportunity cost of 1 bridge = 30 / 6 = 5 clinics
Share of the budget in one bridge = 30 / 90 = 33.3%

Worked reminder (a firm): 50,000 can fund a machine adding 6,000 a year or a van adding 4,500 a year. Choosing the machine has an opportunity cost of 4,500 a year, which is smaller than the 6,000 gained.

Evaluation points: benefits are hard to value in money terms, benefits arrive at different times, and the next best alternative depends on which options are considered.

What, how and for whom (1.1.4)

• What: driven in a market by what buyers will pay for, and in a government by priorities.
• How: depends on relative input prices and technology. A firm picks the cheapest method for the output it wants.
• For whom: a market shares output by ability to pay, which raises questions of fairness (normative).

Worked reminder (how): 150 units a day.

Method A: 3 workers x 70 + machine 90 = 300 -> 300 / 150 = 2.00 per unit
Method B: 6 workers x 70 + tools 30  = 450 -> 450 / 150 = 3.00 per unit
Choose A. Break-even point depends on the wage.

If A used 3 workers at wage w and B used 6 workers at wage w, the cost gap would be 3w - 60. Method A would be cheaper whenever 3w > 60, so when w exceeds 20.

How different economic systems answer these questions is section 1.4. See the basic ideas revision notes.

1.2 Economic methodology

Economics as a social science (1.2.1)

• Scientific method: observe, build a model, form a hypothesis, test it against data, refine or reject.
• Social, because it studies human behaviour in society.
• Limits: few controlled experiments, behaviour changes with expectations, and values enter policy advice.
• Judgement: it uses scientific methods but cannot match the precision of the natural sciences.

Positive and normative (1.2.2)

Positive	Normative
Testable with evidence	Rests on a value judgement
Can be true or false	Cannot be proved true or false by evidence alone
“Prices rose 4% last year”	“Prices should be controlled”
“A subsidy raises output”	“The subsidy is unfair”

Tips:

• A false statement can still be positive.
• Watch for should, ought, fair, too much, better.
• Split mixed sentences into a positive part and a normative part.

Ceteris paribus (1.2.3)

• Change one variable, hold the rest constant, and observe the separate effect.
• It simplifies, so state what else might change when you evaluate.

Worked reminder: price falls from 5 to 4 and sales rise from 300 to 330.

Price change = (4 - 5) / 5 = -20%
Sales change = (330 - 300) / 300 = +10%

If a rival also raised its price in the same week, the 10% rise may not come from the price cut alone.

Time period (1.2.4)

Period	What can change	Typical response of a firm
Short run	One or more factors cannot change	Change labour or materials
Long run	All factors variable	Change plant size or location
Very long run	Technology and factor quality	Adopt new methods, retrain the workforce

Periods differ by industry. They are defined by what can change, not by months or years.

Chains of reasoning to reuse

• Scarcity to choice: wants exceed resources, so decision-makers must choose, so every choice has an opportunity cost, so a good decision compares the benefit gained with the best benefit forgone.
• Input prices to method: a rise in the wage makes labour-intensive methods dearer, so a profit-seeking firm moves towards capital, so the answer to “how to produce” changes, and the answer to “for whom” may change as jobs and incomes shift.
• Time to flexibility: in the short run a firm can only change the variable factors, so its response to higher demand is limited, so prices or waiting times may rise until the long run allows more capacity.
• Evaluation of a model: state the assumption (ceteris paribus), say what could break it, then judge how much the result changes.

Command words in this topic

• Define: give a precise meaning in one or two lines.
• Explain: give a reason, then link it to the point asked.
• Distinguish: state the difference in both directions, and give a short example of each.
• Analyse: build a chain of cause and effect.
• Evaluate: weigh the strengths and limits, then reach a supported judgement.

Must-know distinctions

• Scarcity is not a shortage.
• Opportunity cost is the next best alternative, not all alternatives and not just money spent.
• Positive is about testability, not truth.
• Ceteris paribus is an assumption, not a claim that other things never change.
• Short, long and very long run are about flexibility, not calendar time.

Quick self-test

1. Define scarcity.
2. A tailor makes 24 shirts or 6 coats a day. What is the opportunity cost of one coat?
3. Choose positive or normative: “Wages in Town X rose 3% last year.”
4. Choose positive or normative: “Wages in Town X should rise faster.”
5. A government has 90 million. A bridge costs 30 million and a clinic 6 million. How many clinics equal one bridge?
6. A firm picks project P (gain 8,000), ahead of project Q (gain 6,500) and project R (gain 5,000). State its opportunity cost.
7. State the three questions of resource allocation.
8. Explain why a lower price might not be the only cause of a rise in sales.
9. Give the difference between the short run and the long run.
10. Name two reasons economics differs from physics.

Answers

1. Wants are unlimited but resources are limited.
2. 24 / 6 = 4 shirts.
3. Positive.
4. Normative.
5. 30 / 6 = 5 clinics.
6. 6,500, from project Q.
7. What, how and for whom to produce.
8. Other factors, such as income, tastes or rivals’ prices, may have changed at the same time. Ceteris paribus fails in practice.
9. In the short run some factors cannot be changed. In the long run every factor can be changed.
10. Economists rarely run controlled experiments, and human behaviour changes with expectations and values.

Where marks are usually lost

• Writing “what you give up” without “next best”.
• Adding together several alternatives to find opportunity cost.
• Calling scarcity a shortage.
• Using “should” in a prediction and wrongly labelling it normative, or the reverse.
• Defining positive as “true” and normative as “false”.
• Defining ceteris paribus but not applying it to a stated pair of variables.
• Treating the short run as a fixed number of months.
• Stopping at description in an evaluation question and offering no judgement.

Official syllabus

Cambridge International AS & A Level Economics 9708 syllabus for examination in 2026, 2027 and 2028, sections 1.1 and 1.2 (Cambridge University Press & Assessment).