Basic Concepts

The Economic Problem

• The economic problem is the challenge of using limited resources to satisfy unlimited human wants.
• Scarcity is the fundamental economic problem - there are not enough resources to satisfy all wants.
• The key factors of production are land, labor, capital, and entrepreneurship.
• Opportunity cost is the value of the next best alternative forgone when making a choice.
• Production possibility curves demonstrate the trade-offs between producing two goods given limited resources.

Exam Tips:

• Understand the key concepts of scarcity, factors of production, and opportunity cost.
• Be able to analyze production possibility curves and explain the economic problem.