<1.1 THE NATURE OF THE ECONOMIC PROBLEM>  

• First things first, we can all agree that our WANTS ARE UNLIMITED, you may tell yourself otherwise but the fact that you have 5 old phones at home and 200 pairs of trainers tells another story ;)

• Now how is this related to economics you may ask? Well economics only exists because the wants of society are never-ending, and clearly, SOME PEOPLE'S WANTS ARE MORE ABLE TO BE SATISFIED THAN OTHERS, but WHY CAN'T ALL WANTS BE SATISFIED?

• ...the answer to this question is related to the fact that most of these UNLIMITED WANTS require PRODUCTIVE RESOURCES to be used, however, these RESOURCES ARE LIMITED in their quantity and have to be used sparingly. For example oil and workers.

• With UNLIMITED WANTS + LIMITED PRODUCTIVE RESOURCES, we say that 'SCARCITY' exists, and that... 

"...due to scarcity, CHOICES about how these limited resources are used ('ALLOCATED') must inevitably be made"

• As economics is ONLY CONCERNED with THE ALLOCATION OF SCARCE GOODS (Which are called 'ECONOMIC GOODS'), we can IGNORE goods that aren't considered scarce, which are called 'FREE GOODS' 

• "But how to tell whether a good is an economic or a free good?"

Well an ECONOMIC GOOD will ALWAYS satisfy these conditions:

•  1) People are willing to pay a price for it.

•  2) If it was priced at zero dollars there would be a shortage, in other words at £0, the supply would not be enough to satisfy demand.

•  3) It's production uses resources (e.g labour) that have an alternative use, that has to be forgone (given up on).

• Write a definition of an economic good and apply the three conditions above to NAISHK to show that it is considered an ECONOMIC GOOD.

• "An economic good is defined as a type of good that satisfies the following conditions...., an example of an economic good is NAISHK because...."

Pt. 1) Next, as a free good is the opposite of an economic good reword the conditions below to reflect that of a FREE GOOD

Well an ECONOMIC GOOD will ALWAYS satisfy these conditions:

• 1) People are willing to pay a price for it.

• 2) If it was priced at zero dollars there would be a shortage, in other words the supply at £0, would not be enough to satisfy demand.

• 3) It's production uses resources (e.g labour) that have an alternative use, that has to be forgone (given up on)

Pt. 2) Next, apply the three new conditions above to 'AIR IN THE SKY' to show that it is considered a FREE GOOD.

• "Air is generally considered an economic good because...."

• Define ‘resources’. (2)

• Why can the economic problem never be solved? (2)

• What is meant by ‘scarce resources’? (2)

• Define resources. (2)

• Explain why the economic problem can never be solved.  (4)