Key Idea: Topic 1.1 introduces the central problem in economics — scarcity — and the key concepts that flow from it: opportunity cost, the production possibilities curve (PPC), free vs economic goods, and the three basic economic questions every society must answer.
✅ Core definitions
Capital means machines and equipment, NOT money. Scarcity is permanent (unlimited wants vs limited resources). Shortage is temporary (a market condition that prices can fix).
📊 The Production Possibilities Curve (PPC)
⚖️ Opportunity cost and trade-offs
❓ The three economic questions
🏛️ Economic systems
Market economy: Decisions by individuals/firms via the **price mechanism**. Consumer demand determines what to produce. Efficient but can cause inequality. No pure example exists.
Planned economy: **Government** decides all three questions centrally. Social needs determine what to produce. More equal but often inefficient. Historical: USSR, Cuba, North Korea.
💲 The price mechanism
In exams: always state opportunity cost precisely. 'The opportunity cost of producing 10 more cars is 20 units of wheat forgone.' Use numbers from the data if provided.