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Basic economic problems

Economics · WAEC and JAMB · SS2 and SS3

Everything in economics follows from one fact: wants are unlimited and resources are not. Examiners want you to apply that, not recite it.

What you need to know

  • Scarcity forces choice; choice creates opportunity cost. That chain is the whole foundation.
  • Every economy must answer three questions: what to produce, how to produce it, and for whom.
  • A free market economy answers them through the price mechanism; a planned economy through the state; a mixed economy through both.
  • The production possibility curve shows the maximum combinations of two goods with given resources.
  • A point inside the curve means unemployed resources; a point outside is unattainable with current resources.
  • Moving along the curve means giving up one good for another — opportunity cost made visible.

Key terms

Opportunity cost
The value of the next best alternative forgone when a choice is made.
Scale of preference
A list of wants arranged in order of importance.
Economic good
A good that is scarce and therefore has a price. A free good, like air, has none.

Worked example

A farmer with one hectare can grow either 40 bags of maize or 25 bags of beans. What is the opportunity cost of one bag of beans?

  1. Giving up all beans yields 40 maize; giving up all maize yields 25 beans.
  2. So 25 beans cost 40 maize.
  3. 1 bean costs 40 / 25 maize.

The mistake to avoid

Opportunity cost is the NEXT best alternative, not the total of everything given up. If three options are rejected, only the best of those three counts.

In the exam

Nigerian examples strengthen every answer. Oil dependence, the subsidy debate and the Dangote refinery are all usable in essay questions.