1

The basic economic problem

Activity (p. 2)
Examples of goods (economic goods) limited in supply could include:
l primary sector goods, e.g. fresh flowers, carrots, rice, oil, gold, copper
l manufactured goods, e.g. cameras, cars, hairdryers, footballs.

Examples of goods in unlimited supply (free goods) could include, e.g. seawater,
sand, air, intellectual property if ideas and inventions are not patented.
The first list (goods in limited supply) will be longer than the second list (free goods).

Activity (p. 3)
1 The goods and services provided by the public sector will vary between countries
but may include: fire services, police, ambulance services, hospitals, schools,
health care clinics, libraries, museums, parks, litter bins, rubbish/refuse collection,
street lights, road signs, roads, bridges, public transport, swimming pools and
sports facilities.
2 The goods and services provided will vary between countries. They are free of
charge to the end user but are paid for by taxpayers.
Goods which are free to individuals could include: libraries, roads, parks,
hospitals, schools, litter bins, fire, ambulance and police services.
3 The goods and services provided will vary between countries.
Examples include: hospitals, schools, roads, museums, refuse/rubbish collection,
health clinics, swimming pools and sports facilities.
4 Aims Public sector swimming pool Private sector health and leisure club
1 To provide a service to the general To make a profit
public
2 To cater for the needs of all sectors of To cater for middle/higher income earners
society regardless of income, e.g. may as membership fees tend to be high
offer discounted entrance fees for the
elderly and children
3 Will hire its facilities to school groups Will allow only members and their guests
and sports clubs to use the facilities
4 Available for all members of the public The number of members is restricted so
to use the club remains exclusive

Activity (p. 4)
1 Needs: food, water, shelter, warmth, clothes and human contact
Wants: students own answers, e.g. smartphone, pens, pencils, books, toys,
computer, movies, haircuts, internet access, restaurant meals, cinema tickets,
make-up, football
2 Students own answers
3 Students own answers
4 Students own answers
Examples may include: land, fuel, housing, fresh water.
The shortage occurs due to the basic economic problem, i.e. infinite wants, yet
there are finite resources to meet these wants.

Cambridge IGCSE and O Level Economics Hodder & Stoughton 2013 1

 1 The basic economic problem

Activity (p. 6)
1 Capital: machinery, equipment to make the jewellery, workshop and shop to sell
the jewellery
Enterprise: the skills necessary to organise the design and production process
successfully and to motivate workers so they work to the best of their ability
Labour: people to produce the jewellery, work in the shop and perform the
administrative tasks of book keeping and processing online orders
Land: the natural resources required to make the jewellery: silver, gold and semi-
precious stones
2 a) Mobile phone manufacturer
Activity/Sector Examples of goods/services required
Primary Metal for components, copper for wiring, oil to make plastic
Secondary Production of mobile phones, purchase of components for phones from
other manufacturers, e.g. battery, circuit board, memory card
Tertiary Advertising agency, transport company to deliver the phones from the
factory to the retail shops, banking, advertising, insurance

b) A fast food restaurant chain

Activity/Sector Examples of goods/services required
Primary Meat, eggs, salad ingredients, fish, milk, tea, coffee
Secondary Production of food for customers, purchase of ingredients from other
manufacturers, e.g. cheese, tomato sauce, pickles
Tertiary Advertising agency, banking, advertising, insurance, interior design of
restaurants, electricians, plumbers, painters and decorators

c) A shop selling kitchen equipment

Activity/Sector Examples of goods/services required
Primary Raw materials to make the kitchen products, e.g. clay, metal, oil for
plastics, wood
Secondary Manufacture of raw materials into finished kitchen products
Tertiary Advertising, insurance, accountancy services, banking, transport to deliver
products to shops, interior design of shops

Exam practice (p. 9)

1

B
Capital goods

PPC2 PPC1

O Consumer goods

Cambridge IGCSE and O Level Economics Hodder & Stoughton 2013 2

 1 The basic economic problem

The PPC curve of Bangladesh will shift inwards from PPC1 to PPC2 because the
flooding causes loss to crops and damage to homes and methods of transport.
Award 2 marks for drawing and labelling a correct diagram.
Award 2 marks for explaining the diagram.
2 At point A some of the factors of production are idle (unemployed) because point
A lies within the PPC.
3 Point B is unattainable because it lies outside the PPC.

Cambridge IGCSE and O Level Economics Hodder & Stoughton 2013 3