Syllabus: Pearson - AS Level Economics
Module: 1.1 Nature of Economics
Lesson: 1.1.3 The Economic Problem

Introduction

The economic problem sits at the heart of AS Level Economics and underpins much of the thinking that follows in the Pearson Edexcel course. Unit 1.1.3 explores the concept of scarcity and introduces students to the challenge of making choices when resources are finite. This is more than theoretical—it’s the grounding for real-world policy decisions, business strategy, and personal finance.

Aligned to Theme 1: Introduction to markets and market failure of the Pearson Edexcel Level 3 Advanced Subsidiary GCE in Economics A, this topic builds a foundation for deeper economic analysis. It’s where students begin to think like economists—balancing trade-offs, applying models like the Production Possibility Frontier (PPF), and questioning how resources are allocated in different economic systems.

Key Concepts

According to the Pearson Edexcel specification, students are expected to learn the following:

• Scarcity: The idea that we have unlimited wants but limited resources.

• Finite Resources: Understanding the difference between renewable and non-renewable resources.

• Opportunity Cost: The value of the next best alternative foregone when a choice is made—applicable to consumers, producers, and governments.

• Production Possibility Frontiers (PPF):

  • Illustrate opportunity cost and economic trade-offs.

  • Show economic growth, decline, and efficiency.

  • Highlight the distinction between capital and consumer goods.

Students also engage with assumptions like ceteris paribus and consider how economic agents behave under conditions of scarcity.

Real-World Relevance

Scarcity isn’t abstract—it’s a daily reality for individuals and governments alike. Recent events offer compelling examples:

• Energy Crisis in Europe: Russia’s invasion of Ukraine triggered a reassessment of gas supply. The UK government faced opportunity costs when deciding between energy subsidies and other public spending priorities.

• Post-COVID NHS Backlogs: Choosing between investing in cancer care or mental health services puts the economic problem into stark relief.

• Climate Policy and Trade-offs: Debates over HS2, offshore wind, or road expansion all highlight opportunity cost in action—where should limited capital investment go?

You could present students with mini case studies, like a local council deciding between funding youth centres or pothole repairs. It brings the model off the page and into the world they recognise.

How It’s Assessed

In the AS Paper 1 (Markets and Market Failure), students may encounter this topic in various formats:

• Short-answer questions asking for definitions of scarcity or opportunity cost.

• Data-response questions involving resource allocation or shifts in the PPF.

• Extended response questions assessing their ability to apply and evaluate economic trade-offs.

Key command words used include:

• Define: e.g. “Define the term opportunity cost.”

• Explain: “Explain how a PPF can show economic growth.”

• Analyse: “Analyse the impact of increased immigration on an economy’s PPF.”

• Evaluate: “Evaluate whether the UK should prioritise investment in renewable energy over other public services.”

Students should practise drawing and interpreting diagrams, especially PPFs with shifts, opportunity cost arcs, and underutilisation points.

Enterprise Skills Integration

The economic problem is a natural entry point for enterprise thinking:

• Problem-solving: Weighing up trade-offs mirrors business decision-making.

• Critical thinking: Challenging assumptions about scarcity, wants, and rational choice.

• Decision-making under pressure: Like entrepreneurs or policymakers, students must justify one course of action over another.

Enterprise Skills’ Business Simulations drop students into fictional scenarios where they must allocate limited budgets, choose between product lines, or decide on hiring strategies. These directly reinforce concepts like opportunity cost and scarcity in action, with no extra planning required by the teacher.

Careers Links

Understanding the economic problem develops analytical skills relevant to roles in:

• Policy and Government (Gatsby Benchmark 5): Resource allocation is central to civil service and local government roles.

• Business and Management: Managers must constantly decide how to allocate time, staff, and money.

• Environmental and Sustainability Careers: Choosing between competing ecological priorities requires economic thinking.

• Finance and Banking: Opportunity cost underpins investment decisions and risk management.

This topic offers a great hook for talking about career relevance. Consider inviting a local entrepreneur or public sector manager to talk about resource allocation in their role (Gatsby Benchmark 6).

Teaching Notes

Tips:

• Start with relatable scarcity: e.g. “You’ve got £10 and a Saturday afternoon—what do you choose?”

• Use diagrams early and often: Ensure students can confidently sketch and label a PPF.

• Link to contemporary issues: News articles on NHS spending, housing shortages, or climate finance make excellent stimulus.

Common pitfalls:

• Confusing opportunity cost with monetary cost.

• Failing to show movement along vs shifts in PPFs.

• Relying on rote definitions without applying them to examples.

Extension ideas:

• Run a classroom debate: Should a school spend its last £5,000 on laptops or mental health support?

• Use Skills Hub tools for scaffolded PPF practice, including step-by-step diagram analysis and built-in assessment tasks.