📄 Cheat Sheets — Economics

Key facts, formulas and common mistakes for 1 of 1 chapters

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7 key facts·5 common mistakes·7 definitions·5 exam tips

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Definitions

Resources: Inputs used to produce goods and services.
Wants: Things that people desire, which are always likely to be something else whatever their income.
Needs: Things like food, shelter and clothing that are needed for survival.
Scarcity: The fundamental economic problem that arises because resources are scarce while people’s wants are unlimited.
Choice: Taking decisions on how to allocate scarce resources between many competing uses.
Opportunity cost: The cost of the choice in terms of the next best alternative.
Scale of preference: Each individual’s scale of preference is a product of a set of influences, including culture, upbringing and life experiences, on which you place your more urgent wants at the top and the less urgent ones at the bottom.

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The fundamental economic problem is scarcity: unlimited human wants versus limited resources.Ch 01
Scarcity forces all economic agents (individuals, firms, governments) to make choices.Ch 01
Opportunity cost is the value of the single next best alternative foregone when a choice is made.Ch 01
All economies must answer three basic questions: What to produce? How to produce it? For whom to produce it?Ch 01
Needs are essential for survival (e.g., food, shelter), while wants are desires that improve quality of life.Ch 01
Resources are all inputs used for production, not just money. They include raw materials, labour, and machinery.Ch 01
A scale of preference is an individual's ranking of their wants, which guides their choices.Ch 01

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✗Confusing wants with needs. Needs are essential for survival; wants are not.Ch 01
✗Defining scarcity as simply 'not enough of something'. It's specifically 'not enough resources to satisfy all human wants'.Ch 01
✗Stating that opportunity cost is all the alternatives given up. It is only the single next best alternative.Ch 01
✗Thinking 'resources' just means money. It includes all factors of production.Ch 01
✗Forgetting that the economic problem of scarcity and choice applies to governments and firms, not just individuals.Ch 01

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→Always provide a precise definition for opportunity cost: 'the next best alternative foregone'.Ch 01
→When explaining any economic choice in an exam, explicitly state the opportunity cost involved.Ch 01
→Use the three basic economic questions (What, How, For Whom) as a framework to structure your analysis of any economy.Ch 01
→In case studies, actively look for examples of scarcity, the choices being made, and the resulting opportunity costs.Ch 01
→Clearly distinguish between the problem (scarcity) and its consequences (choice and opportunity cost) in your explanations.Ch 01