The economic problem is:
- people have unlimited wants
- limited resources (factors of production)
- leads to scarcity
- people have to make a choice
- resulting in having an opportunity cost
Opportunity cost is the next best alternative given up by choosing another good or service.
Opportunity cost : in every decision we make daily there is always going to be an opportunity cost. In making choices we need to carefully consider the opportunity cost to make sure it is not more valuable than the item we are purchasing.
Example, if the government decided to build a new school the opportunity cost could possibly be building a new road. To the government by making this decision they believe a new school would benefiet the community more.
Scarcity in relation to the economic problem is: the lack of sufficient products to fulfil the wants of the total population
Factors of Production