Key Idea: Topic 1.1 introduces the **central problem in economics** — **scarcity** — and the key concepts that flow from it: **opportunity cost**, the **production possibilities curve (PPC)**, free vs economic goods, and the **three basic economic questions** every society must answer.
✅ Core definitions
Capital means **machines and equipment**, NOT money. Scarcity is **permanent** (unlimited wants vs limited resources). Shortage is **temporary** (a market condition that prices can fix).
📊 The Production Possibilities Curve (PPC)
⚖️ Opportunity cost and trade-offs
❓ The three economic questions
🏛️ Economic systems
Market economy: Decisions by individuals/firms via the **price mechanism**. Consumer demand determines what to produce. Efficient but can cause inequality. No pure example exists.
Planned economy: **Government** decides all three questions centrally. Social needs determine what to produce. More equal but often inefficient. Historical: USSR, Cuba, North Korea.
💲 The price mechanism
In exams: always state opportunity cost precisely. 'The opportunity cost of producing 10 more cars is 20 units of wheat forgone.' Use numbers from the data if provided.