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

This guide covers sections 1.1 (Scarcity, choice and opportunity cost) and 1.2 (Economic methodology) of the Cambridge International AS & A Level Economics 9708 syllabus for examination in 2026, 2027 and 2028. Both sections sit in topic 1, which is AS Level content. A Level candidates study it too, and the syllabus treats it as assumed knowledge for A Level Papers 3 and 4. Every figure below is invented for illustration. None is a real statistic.

Go to the Cambridge A Level Economics hub for all topics, or tick off outcomes on the printable checklist. Once you finish, use the revision notes and the practice questions. Unsure where you stand? Take a free 10-minute diagnostic.

What this guide covers

Section	What you must be able to do
1.1.1	Explain scarcity as the fundamental economic problem
1.1.2	Explain why individuals, firms and governments must make choices
1.1.3	Define opportunity cost and show how choices create it
1.1.4	Explain what, how and for whom to produce
1.2.1	Explain why economics is a social science
1.2.2	Distinguish positive from normative statements (facts from value judgements)
1.2.3	Explain the term ceteris paribus
1.2.4	Explain why the time period matters: short run, long run, very long run

The syllabus sets no calculation in these sections. The worked examples below use arithmetic because opportunity cost and ceteris paribus are easiest to grasp with numbers.

1.1.1 Scarcity: the fundamental economic problem

Scarcity is the gap between unlimited wants and limited resources. People want more goods, services and leisure than the available land, labour, capital and enterprise can produce. Scarcity is the reason economics exists. Without it nobody would need to choose.

Three points to get right:

1. Scarcity applies to everyone. A wealthy household has a bigger budget but still has only 24 hours a day and still cannot buy everything it might want.
2. Scarcity is not the same as a shortage. A shortage is a market event: at the current price, buyers want more than sellers supply. Scarcity is permanent and applies even when a market clears.
3. Scarcity covers time and attention as well as money.

1.1.2 Choices at every level

Because resources are limited, each decision-maker must choose.

• Individuals choose how to use limited income and time: what to buy, how long to work, how much to save.
• Firms choose what to produce, which inputs to hire and which projects to fund from limited finance.
• Governments choose how to use limited tax revenue and borrowing across health, education, defence and other uses.

These levels are linked. If a government spends more, it may raise taxes, which leaves households with less income to choose from.

1.1.3 Opportunity cost

Opportunity cost is what you give up by choosing, measured by the best option you passed over. It is a cost in terms of sacrifice, not necessarily in money. Every choice has one because choosing one use of a resource rules out the others.

Worked example 1: a bakery (a ratio)

A small bakery has one oven for a day. Illustrative figures: it can bake 120 loaves or 90 cakes, using all the oven time either way. Assume the trade-off is constant.

Opportunity cost of 1 cake = 120 / 90 = 1.33 loaves
Opportunity cost of 1 loaf = 90 / 120 = 0.75 of a cake
Choose 60 cakes: loaves forgone = 60 x 1.33 = 80
Loaves still baked = 120 - 80 = 40

The opportunity cost of the 60 cakes is 80 loaves. Real trade-offs often change as output changes. That idea belongs to production possibility curves in section 1.5.

Worked example 2: an individual

Maya has six free hours on Saturday. Her options, ranked by her own valuation, are: 1st revising, 2nd a paid shift at 9 currency units an hour, 3rd football. She revises.

The opportunity cost is the next best alternative, the paid shift: 6 x 9 = 54 currency units of earnings forgone. It is not shift plus football. She could only have used the time once, so only the best forgone use counts.

Worked example 3: a firm

A firm has 200,000 to invest. Option 1, a machine, adds 30,000 a year to profit. Option 2, a showroom, adds 24,000. Option 3, a deposit at 5 per cent, earns 5% x 200,000 = 10,000.

The firm picks the machine. Its opportunity cost is 24,000 a year, the showroom. The choice is sound because 30,000 exceeds 24,000 by 6,000. If the showroom were expected to add 34,000, the choice would flip.

Worked example 4: a government

Country B has a fixed budget of 600 million for health and education. A hospital costs 150 million and a school costs 50 million.

Opportunity cost of 1 hospital = 150 / 50 = 3 schools
Share of budget used by 1 hospital = 150 / 600 = 25%
Check one plan: 2 hospitals + 6 schools = 300 + 300 = 600

If the government builds two hospitals and six schools, the budget is exhausted. A third hospital would cost three schools.

Evaluating the idea

Opportunity cost is easy to state and hard to measure. A government comparing a hospital with a school has to value lives saved against years of learning. Benefits arrive at different times and with uncertainty. The next best alternative depends on which options decision-makers consider. Use the idea to make trade-offs explicit, then judge how reliable the numbers are.

1.1.4 What, how and for whom to produce

Scarcity forces every economy to answer three questions.

• What to produce: which goods and services, and in what quantities.
• How to produce: which methods, such as labour-intensive or capital-intensive.
• For whom to produce: how output is shared among people.

Worked example 5: how to produce

A bakery needs 600 loaves a day. Method L uses 12 workers and a basic oven costing 50 a day. Method C uses 4 workers and an automated line costing 400 a day.

Wage 100 a day:
  L = 12 x 100 + 50 = 1,250 -> 1,250 / 600 = 2.08 per loaf
  C = 4 x 100 + 400 = 800   ->   800 / 600 = 1.33 per loaf
  Choose C.
Wage 30 a day:
  L = 12 x 30 + 50 = 410    ->   410 / 600 = 0.68 per loaf
  C = 4 x 30 + 400 = 520    ->   520 / 600 = 0.87 per loaf
  Choose L.
Break-even wage: 12w + 50 = 4w + 400 -> 8w = 350 -> w = 43.75

Above a wage of 43.75 a day the capital-intensive method is cheaper. Below it, the labour-intensive method wins. So the relative price of inputs shapes the answer to “how”.

Worked example 6: for whom

In Country C, an invented economy of 1,000 people with total income of 1,000,000, a market distributes output by ability to pay. Suppose the top 20% of people (200 people) receive 50% of income and the bottom 20% receive 5%.

Top 20%:    500,000 / 200 = 2,500 per person
Bottom 20%:  50,000 / 200 =   250 per person
Ratio = 2,500 / 250 = 10

A basket of essentials costs 300. The average person in the top group can afford 2,500 / 300 = 8.33 baskets. The average person in the bottom group, at 250 / 300 = 0.83, cannot afford one. Answering “for whom” is therefore also a question about fairness, and that links to normative judgements below. How different economic systems answer the three questions is section 1.4. See the basic economic ideas guide for that.

1.2.1 Economics as a social science

Economics studies the decisions that households, businesses and states take under scarcity. It is a social science because it studies human behaviour in society and uses a scientific method:

1. Observe a pattern in behaviour.
2. Build a model, a simplified account of how decision-makers behave.
3. Draw a testable hypothesis from the model.
4. Test it against evidence.
5. Keep, refine or reject the model.

Economics differs from natural sciences. Economists cannot usually run controlled laboratory experiments on whole economies. People’s behaviour depends on expectations and values, and it can change when they learn about a policy. For that reason economic results are usually tendencies, not laws.

A balanced judgement on “how scientific is economics?” runs like this. It uses evidence and testable hypotheses, which supports the claim. However, it cannot isolate variables as cleanly, which weakens the claim, and policy advice also involves values. Economics is best seen as a social science that uses scientific methods with less precision.

1.2.2 Positive and normative statements

A positive statement is a claim of fact that evidence can check. It may turn out true or false. A normative statement is a value judgement about what ought to be, and evidence alone cannot settle it.

Statement	Type	Reason
The average price of bread in Country A rose from 1.80 to 1.89, a 5% rise	Positive	Checkable (0.09 / 1.80 = 5%)
Bread should be subsidised	Normative	Depends on values about who should gain
A subsidy on bread raises the quantity bought	Positive	A testable prediction, even if it proves wrong
Inequality in Country C is unfairly high	Normative	“Unfairly” is a judgement

Watch for two traps. A positive statement can be wrong, so testability, not truth, is the test. Words such as “should” usually signal a normative statement, but check the meaning: “if the price falls, firms should supply less” is a prediction about behaviour. Many policy sentences mix both, such as “the wage floor is too high, so it should be cut”. Split them into their positive and normative parts.

1.2.3 Ceteris paribus

Ceteris paribus means “all other things being equal”. Economists change one variable in a model and hold others constant, so that they can see its separate effect.

Worked example 7: why holding things constant matters

An ice cream seller cuts the price from 3.00 to 2.50. Weekly sales rise from 400 to 520, in a week when the weather also turned hot.

Price change = (2.50 - 3.00) / 3.00 = -16.67%
Sales change = (520 - 400) / 400 = +30%
Naive ratio  = 30 / 16.67 = 1.8

That ratio overstates the effect of price. Suppose other evidence shows the hot weather alone would have raised sales to 480 (+20%) at the old price. Then:

Sales effect of the price cut alone = (520 - 480) / 480 = +8.33%
Ratio for price alone = 8.33 / 16.67 = 0.5

The price effect is much weaker than it first appeared. Ceteris paribus is an assumption that makes models workable, but real markets never hold everything else constant. Say so when you evaluate.

1.2.4 The time period

Economists distinguish periods by what can change, not by calendar length.

Period	What can change	Bakery example
Short run	One or more factors cannot be changed	Hire extra staff or buy more flour. The oven cannot change
Long run	All factors can vary	Install a second oven, rent bigger premises
Very long run	Technology and the quality of factors can also change	Adopt a new baking process, train a new skill base

The length of each period differs by industry. A hairdresser can change premises within months, but a power station takes many years. When a question asks how a firm or market responds, state the period, because the answer often differs between periods.

Common errors

• Defining opportunity cost as “the cost of the thing you buy” or listing every alternative instead of the next best.
• Treating scarcity as a shortage, or as affecting only poor countries.
• Calling a statement positive because it sounds true, or normative because it names a government.
• Describing ceteris paribus without applying it to a pair of variables.
• Giving fixed time lengths for the short, long and very long run.

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).