The Economic Problem

Question 1

Need

Answer 1

A good or service essential for living. Examples include water and food and shelter.

Question 2

Want

Answer 2

a good or service that people would like to have, but is not required for living. Examples include cars and watching movies.

Question 3

Scarcity

Answer 3

Scarcity is the basic economic problem. It is a situation that exists when there are unlimited wants and limited resources to produce the goods and services to satisfy those wants. For example, we have a limited amount of money but there are a lot of things we would like to buy, using the money.

Question 4

Opportunity Cost

Answer 4

Opportunity cost is the next best alternative forgone by choosing another item. Due to scarcity, people are often forced to make choices. When choices are made it leads to an opportunity cost

Question 5

SCARCITY → CHOICE → OPPORTUNITY COST

Answer 5

Example: the government has a limited amount of money (scarcity) and must decide on whether to use it to build a road, or construct a hospital (choice). The government chooses to construct the hospital instead of the road. The opportunity cost here are the benefits from the road that they have sacrificed (opportunity cost).