Syllabus: Cambridge - International AS & A Level Economics
Module: 1.1 Scarcity Choice and Opportunity Cost
Lesson: 1.1.4 Basic Questions of Resource Allocation
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Introduction
This lesson sits within Section 1.1 Scarcity Choice and Opportunity Cost of the Cambridge International AS & A Level Economics syllabus, specifically Topic 1.1.4 Basic Questions of Resource Allocation. It introduces students to the foundational economic problem of scarcity and the inevitable need to make choices about how limited resources are allocated. Cambridge explicitly requires learners to understand and apply the three basic economic questions, what to produce, how to produce, and for whom to produce. Mastery of this topic underpins later analysis of markets, government intervention, and economic systems, making it a critical building block for progression across the course .
Key Concepts
At the heart of this topic is the concept of scarcity, where finite resources exist in the face of unlimited wants. Students must understand that all economic systems face this constraint. Choice arises because not all wants can be satisfied, leading to trade-offs. Opportunity cost is central, defined as the next best alternative foregone when a decision is made. The three basic questions of resource allocation structure economic decision-making. What to produce focuses on the mix of goods and services, how to produce considers the choice of production methods and factor combinations, and for whom to produce examines how output is distributed among individuals and groups. Cambridge expects students to apply these ideas to different economic agents, including consumers, firms, and governments, and to recognise that different societies answer these questions in different ways depending on their priorities and institutions.
Real-World Relevance
These abstract questions are constantly visible in real economies. Governments deciding whether to allocate more funding to healthcare or defence are answering what to produce under budget constraints. Firms choosing between labour-intensive or capital-intensive production methods illustrate how to produce, particularly relevant as automation and artificial intelligence reshape industries. For whom to produce is highlighted in debates about income inequality and access to housing, where market outcomes may conflict with social objectives. A useful classroom example is the UK energy sector, where limited public funds force trade-offs between subsidising renewable energy, supporting household energy bills, or investing in long-term infrastructure. Each decision carries an opportunity cost and reflects choices about production and distribution.
How It’s Assessed
In Cambridge AS & A Level Economics, this topic is commonly assessed through short answer and structured questions that test knowledge, application, and analysis. Command words such as define, explain, and analyse are frequently used. Students may be asked to define opportunity cost, explain why scarcity necessitates choice, or analyse how a government’s decision affects resource allocation. At A Level, evaluation may be required, for example assessing whether market forces alone can efficiently answer the basic economic questions. Clear use of economic terminology and contextual application are essential for higher-level responses.
Enterprise Skills Integration
This topic naturally supports the development of decision-making and problem-solving skills. When students weigh opportunity costs, they practise evaluating alternatives under constraints, a core element of commercial awareness. Enterprise Skills activities, such as short decision simulations where students act as policymakers or business leaders allocating limited budgets, help translate theory into workplace-relevant thinking. This aligns with evidence showing that active learning approaches improve comprehension and higher-order thinking compared to passive instruction .
Careers Links
Understanding resource allocation links directly to careers in economics, finance, public policy, and management. Roles such as economist, policy advisor, operations manager, and financial analyst all require informed choices about scarce resources. For careers leads and SLT, this topic supports Gatsby Benchmark 4 by clearly linking curriculum learning to real career pathways, and Benchmark 5 when complemented by employer examples or sector case studies .
Teaching Notes
A common misconception is that scarcity only applies to low-income countries, so it is important to emphasise that all societies face scarcity, regardless of wealth. Encourage students to always identify the opportunity cost explicitly rather than listing all alternatives. Visual tools such as simple production possibility diagrams can support understanding, even though detailed diagrammatic analysis comes later in the course. For extension, ask students to compare how a market economy and a planned economy might answer the three basic questions differently, reinforcing both analytical depth and evaluative skills.
