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Topic 1

Topic 1 - The basic economic problem

This unit introduces the fundamental ideas and concepts that underpin the study of economics, including the basic economic problem, factors of production, opportunity cost, and production possibility curves.

Click on the relevant hyperlink to access the InThinking resources for this section of the syllabus:

Teachers can click on the section below to see the changes to the new syllabus (first exams 2027).

What is Economics?

Economics as defined by well-known economists:

“Economics is the science of wealth.” - Adam Smith (1723 - 1790)

Explanation: Economics studies how wealth is created, exchanged, and used within an economy. It focuses on production and growth of national wealth.

“Economics is a study of mankind in the ordinary business of life.” - Alfred Marshall (1842 - 1924)

Explanation: Economics examines how people earn income and spend it to satisfy their everyday needs. It focus on human behaviour and daily economic activity.

“Economics is the study of economic welfare.” - A. C. Pigou (1877 - 1959)

Explanation: Economics looks at how economic activities affect people’s well-being and quality of life. It focuses on welfare, living standards, and social well-being.

“Economics is the science which studies human behaviour as a relationship between unlimited wants and limited means which have alternative uses.” - Lionel Robbins (1898 - 1984)

Explanation: Given that resources are scarce and human wants are unlimited, choices must be made. Economics focuses on scarcity, choice, and opportunity cost.

“Economics is the study of how people and society choose to employ scarce resources to produce goods and services and distribute them among different people.” - Paul A. Samuelson (1915 - 2009)

Explanation: Economics analyses how societies decide what to produce, how to produce, and for whom to produce. It focuses on production, distribution, and the allocation of resources.

“Economics is a method rather than a doctrine; an apparatus of the mind.” - John Maynard Keynes (1883 - 1946)

Explanation: Economics is a way of thinking that helps analyse real-world economic problems. It focuses on economic analysis and problem-solving.

“Economics is the science of how a particular society solves its economic problems.” - Milton Friedman (1912 - 2006)

Explanation: Economics studies how societies address issues like inflation, unemployment, and growth. It focuses on economic systems and policy decisions.

“Economics is concerned with the enhancement of human freedom.” - Amartya Sen (b. 1933)

Explanation: Economics is about expanding people’s real choices, capabilities, and opportunities. It focuses on development, inequality, and human welfare.

Teacher only box

Please be aware of the following changes to this topic in the new syllabus, especially when using or referring to resource for the previous course, such as past exam papers.

  • Topic 1.1 has been renamed as "The nature of the basic economic problem" (previously called "The nature of the economic problem").
  • Topic 1.1.1. now includes "the concept of scarcity" as an explicit learning outcome.
  • Topic 1.1.2 (Resource allocation decisions) has been added. This explicitly addresses the three basic economic questions which determine resource allocation: (i) what to produce, (ii) how to produce, and (iii) who to produce for?
  • The mobility of the factors of production (previously in Topic 1.2.2) has been removed from the syllabus. The mobility of labour is still covered in the new syllabus (in Topic 3.3.4), i.e., there is no longer the need to teach the mobility of capital, land, and enterprise.

Teachers can also download and use The Arctic Island Survival Game as an introductory activity with students - this is highly recommended to get students engaged and hooked on IGCSE Economics from the outset!

Students can review the contents of this section of the syllabus by having a go at the interactive True or False Quiz here. There is also a PDF version that teachers can use with their students.

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