Syllabus: Pearson - GCSE Economics
Module: 1.1 The Market System
Lesson: Pearson - 1.1.1 The Economic Problem

Introduction

This lesson sits at the heart of Pearson Edexcel’s GCSE Economics Paper 1: Microeconomics and Business Economics. Topic 1.1.1, “The economic problem,” sets the foundation for the whole course by tackling scarcity, choice, and opportunity cost—core ideas students will return to repeatedly across topics and real-world applications.

Getting this topic right early on builds the language, logic, and confidence students need to make sense of everything from price changes to policy debates. And because it’s so tightly connected to assessment and wider economic thinking, it’s an ideal entry point for embedding both classroom engagement and exam confidence.

Key Concepts

According to the Pearson Edexcel specification, students should be able to:

• Understand scarcity: how unlimited wants and finite resources lead to choices.

• Explain opportunity cost and how it affects consumers, producers, and governments.

• Use and interpret Production Possibility Curve (PPC) diagrams to show:

  • Maximum productive potential of an economy

  • Fully employed vs. unemployed resources

  • Opportunity cost of decisions

  • Shifts caused by economic growth or decline

  • The difference between possible and unobtainable production levels

• Identify causes of economic growth or contraction, including changes in resources, technology, or policy.

These concepts aren’t just theory—they’re the logic behind every trade-off in economics.

Real-World Relevance

Scarcity and opportunity cost aren’t confined to textbooks—they’re part of every household budget, public spending review, and business strategy. You can bring this alive in the classroom by asking:

• Should the UK government invest more in the NHS or in green energy infrastructure?

• If a teenager has £10 and wants both cinema tickets and a new phone case, how do they choose?

• How has the war in Ukraine or the global chip shortage affected production decisions in tech and automotive sectors?

Using local case studies—like budget allocations in your own school or council—makes these ideas immediate and personal.

How It’s Assessed

Pearson’s assessment style for Paper 1 includes a mix of:

• Multiple choice questions testing basic definitions and diagrams

• Short-answer questions requiring explanation (e.g. “Define opportunity cost and give one example.”)

• Data response tasks using scenarios to apply concepts like PPCs

• Extended open-ended questions often asking students to analyse trade-offs or evaluate decisions using opportunity cost

Common command words include:

• Define – straightforward, accurate definitions

• Explain – showing logical progression

• Analyse – breaking down an economic decision

• Evaluate – weighing alternatives and making a supported judgement

Getting students fluent in PPC diagrams and real-world applications gives them a clear edge.

Enterprise Skills Integration

This topic is ripe for introducing core enterprise skills:

• Decision-making: weighing opportunity costs mirrors business choices on resource allocation.

• Problem-solving: exploring how to get the most out of limited time, money, or labour.

• Critical thinking: students can debate real trade-offs—like whether governments should prioritise climate investment or cost-of-living support.

Simulations or role-play activities (e.g. “You’re a city council with a £5m budget—where do you spend it?”) build these skills in context and encourage collaborative reasoning.

Careers Links

This topic lays the groundwork for a wide range of future careers:

• Public policy and civil service: allocating resources under constraints

• Business and finance: managing opportunity costs of investment decisions

• Healthcare and education planning: making data-driven choices with limited budgets

• Entrepreneurship: balancing startup costs, time, and priorities

Link to Gatsby Benchmarks 4 and 5 by showing how economic decision-making is central to careers in government, consultancy, law, environmental planning, and project management. Bringing in a local entrepreneur or policy planner to talk about trade-offs in their role can drive the point home.

Teaching Notes

What works well:

• Start with everyday decisions (e.g. choosing how to spend time after school) before scaling up to national-level choices.

• Use large A3 PPC diagrams and coloured counters for group diagram-building.

• Tie in news stories on NHS spending, military aid, or local council cuts to show these decisions happening in real time.

Common pitfalls:

• Students often confuse opportunity cost with financial cost. Reinforce that it’s about the next best alternative foregone.

• Diagram accuracy matters—mislabelled PPCs can lose marks.

Extension ideas:

• Challenge students to critique a government budget (e.g. Spring Statement) using opportunity cost reasoning.

• Ask students to research how a specific business chose between two investment projects.