Chapter 01: Economics as a way of thinking

Explainer

What you must be able to do

• Explain scarcity, choice and opportunity cost with real examples.
• Draw and interpret a PPC (and shifts of PPC).
• Apply economic thinking to everyday decisions (trade-offs).

Core ideas

Economics studies how people, firms and governments make choices when resources are limited. The key is trade-offs: choosing more of one thing usually means giving up something else.

Typical exam angle

• Define terms clearly and give a relevant example.
• Use diagrams where appropriate (PPC, shifts, opportunity cost).
• Link theory to a real-world scenario (housing, healthcare, transport, etc.).

Interactive: Opportunity Cost Calculator

Opportunity cost is the value of the next-best alternative foregone when a choice is made. Enter two options below to explore the concept.