Cambridge IGCSE Economics 0455
Syllabus points
- Define the economic problem: finite resources and unlimited wants.
- Distinguish between economic goods and free goods.
The economic problem
The economic problem is that people have unlimited wants but only finite (limited) resources to satisfy them. Because we cannot have everything we want, we must choose how to use our scarce resources. This problem of scarcity faces every consumer, worker, firm and government.
Unlimited wants + finite resources → scarcity → choice.
Key definitions
| Term | Definition |
|---|---|
| Scarcity | Limited resources are not enough to satisfy unlimited wants. |
| Economic good | A good that is scarce and takes resources to produce, so it has a price and an opportunity cost. |
| Free good | A good that is not scarce and has no opportunity cost, such as air or sunlight. |
| Choice | Selecting one option when resources cannot satisfy every want. |
Economic goods and free goods
- An economic good is limited in supply. Producing it uses up scarce resources, so it has a cost and a price — for example food, clothing and cars.
- A free good is unlimited in supply and needs no resources to produce, so it has no price and no opportunity cost — for example air or sunshine. Free goods are rare.
Because almost everything we want is an economic good, scarcity forces us to make choices and to give something up each time we choose.
Worked example
A family has a fixed income each month. They cannot buy every item they want, so they must decide how to spend their limited money — perhaps more food but a cheaper holiday. This everyday decision is the economic problem in action: finite resources (income) and unlimited wants force a choice.
Common exam mistakes
- Saying resources are unlimited — it is *wants* that are unlimited and *resources* that are finite.
- Calling everyday goods "free goods" — a free good must have no opportunity cost.
- Confusing scarcity (a permanent condition) with a shortage (temporary).
Exam technique
Start by defining the economic problem in one clear sentence (finite resources, unlimited wants). Then link it to the need for choice, which leads directly to opportunity cost (topic 1.3).
Quick revision
- Economic problem = finite resources vs unlimited wants.
- Scarcity forces choice.
- Economic good = scarce, has a cost; free good = unlimited, no cost.