Economics starts because people cannot have everything they would like. Time, money, labour, land, machines and raw materials are limited, while human wants keep expanding and changing. This mismatch is scarcity. It forces every person, business and government to choose.

A want is something people would like to have. Wants include necessities such as food and shelter, but also transport, streaming subscriptions, holidays and more leisure time. They are described as unlimited: satisfying one want does not stop new wants appearing, and people usually want better quality or a greater quantity.

Economists distinguish a want from a need. A need is something essential for survival or a basic acceptable standard of living, such as sufficient food, clean water, shelter and basic healthcare; a want is something desired but not essential, such as a newer phone or a holiday. The boundary is not fixed: what counts as a need can change over time and between societies as living standards, technology and social expectations change — reliable internet access, for example, has moved much closer to being treated as a need in many countries as more essential services move online.

Resources are the inputs available to make goods and services. They are finite at a particular time. A country may have limited fertile land, trained nurses, factories, energy or hours in the day. Scarcity does not mean that nothing exists; it means there is not enough to satisfy every possible want.

Production is not an end in itself. The central purpose of economic activity is the production of goods and services in order to satisfy needs and wants. The main economic groups that carry out and benefit from this activity are consumers, producers and the government, and this course also looks separately at workers, whose decisions about supplying their labour shape what producers are able to make. Because the resources used in production are finite, economic activity can never satisfy every want at once, so choices have to be made.

Scarcity applies in every country and at every income level. A family with a high income may still have only one evening free, a firm may have only one factory site, and a government may have a fixed tax budget. Poverty means having too little income or wealth to achieve an acceptable living standard; scarcity is the wider condition that makes choices necessary for everyone.

Choice is unavoidable whenever resources have alternative uses. A student may use two hours to revise Economics, work in a café or play sport. A local authority may use a plot of land for homes, a library or a car park. The chosen use reveals a priority, but it does not make the unchosen uses disappear.

Consumers allocate a limited income and limited time between goods and services. A household deciding whether to buy a bus pass, food, data for a phone or save for later is solving the basic economic problem. Its wants may be broad, but its budget is finite.

Workers choose how to use limited hours, skills and qualifications. A worker may choose between paid employment, education, unpaid caring work or leisure. Training can increase future choices, but it uses time and money now.

Producers decide what to make with limited workers, premises, machinery, materials and finance. A bakery with one oven cannot bake every product at full capacity at the same moment, so it chooses a mix of bread, cakes and other items.

Governments face many claims on limited tax revenue, borrowing capacity, public land and public-sector workers. Increasing spending on hospitals may mean less can be spent on roads, schools, defence or environmental protection unless revenue or productive resources rise.

These four groups do not solve the basic economic problem in isolation: they interact constantly. Workers are also consumers who spend their wages; firms rely on workers' labour and on consumers' spending to survive; and governments fund public services largely by taxing the income and spending of consumers, workers and firms, while also buying resources and employing workers themselves. A choice made by one group therefore usually affects the resources and options available to the others.

Because resources are scarce, every economy has to decide what to produce, how to produce and for whom to produce. These are not three disconnected questions. A decision to produce more buses rather than cars affects the workers and machinery used, and the people who are able to use the final service.

The what question concerns the type and quantity of goods and services made. An economy may have to choose between consumer goods now and capital goods that help future production, or between private goods and public services. The answer changes as population, income, technology and preferences change.

The how question concerns the production method. A farm may use many workers with simple tools, or more machinery and fewer workers. A hospital may deliver appointments in person or use technology for some consultations. The choice changes the mixture of resources used and can affect cost, quality, speed and employment.

The for whom question concerns distribution: who receives the output. In many markets, people with money and willingness to pay can buy more. Governments may also distribute some goods and services according to need, age, location or other eligibility rules. The course will later compare how markets and governments help answer this question.

For example, a private cinema normally allocates seats to customers who can and will pay the ticket price. A state school place may instead be allocated according to residence and age. The output can be similar — a service for users — but the distribution rule differs.

A free good is available in sufficient quantity to satisfy wants at a zero price in a particular place and time. Fresh air in an uncrowded rural area is a common example. An economic good is scarce in relation to demand and therefore has an opportunity cost; resources must be used to supply it.

In short-answer questions, avoid simply naming a limited resource. Build a chain: identify the wants, state which resource is finite, explain why not all wants can be met, then identify the choice. This approach works whether the context is a household, a business or a government.