Topic 1 ā Subtopic 1.1
Needs vs. Wants
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In Summary:
The distinction between needs and wants is a cornerstone of economic decision-making, guiding how resources are allocated at all levels. Needs are essential for survival and societal functioning, while wants enhance the quality of life and drive innovation. Understanding this balance helps individuals prioritize their resources, businesses cater to consumer demands, and governments design policies that address fundamental needs while fostering growth. Mastering this concept equips us to navigate scarcity and make informed, impactful choices.
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Example:
Imagine a city facing a severe drought. With a limited water supply, the local government must decide how to allocate the resource. Should it prioritize households, agriculture, or industry? This decision reflects the challenge of scarcity and the need to make trade-offs.
Recommended Resource:
To better understand the issue of scarcity, watch the video below and take notes on the concept.
Video 1. āIntroduction to Economics: ā¦ā [by Zachary Fruhling]
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Key Graph to Remember:
Figure 1. Graph Illustrating the PPC (economicsonline.co.uk)
Where:
Points A, B, C, D, E and F = Productively Efficient
Point P = Productively Inefficient
Point Q = Unfeasible (due to a lack of resources)
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Key Formula to Remember:
Where:
PED = Price Elasticity of Demand
ĪQdāÆ% = Percent Change in Quantity Demanded
ĪPāÆ% = Percent Change in Price
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Practice Exercises:
A coffee shop increases the price of a large cappuccino from $4.00 to $4.40. The number of large cappuccinos sold per week falls from 500 to 440.
Calculate the percentage change in price and quantity demanded.
[2 marks]
Use your results to calculate the price elasticity of demand (PED) for large cappuccinos. Interpret your answer.
[3 marks]
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