The Economic Problem

  • Created by: April15
  • Created on: 16-10-19 22:29

The Economic Problem:

Scarcity:- The world's resources are finite (there are limited amounts of land/water/oil/food etc.), economists therefore say that resources are scarce. Scarcity means that economic agents (individuals/firms/governments/international agencies) can only obtain a limted amount of resources at any moment in time. Scarce resources are called economic goods. Not all resources are scarce (air), these are free goods. As the population of the planet has expanded and production has increased, the number of free goods diminished. Environmental change and economic/societal development reduces the amount of free goods.

Infinate Wants:- People have limited/finite needs (must be satisfied for survival (material and emotional and psychological): food/water/heat/shelter/clothing/love/self-esteem etc.). People would want a higher standard of living because human wants are unlimited (more love/more food/justice/bigger house etc.).

The Basic Economic Problem:- Resources are scarce but wants are infinite, this forces economic agents to make choices and allocate their resources between competing uses. Economics is the study of the choices made by economic agents (allocation of resources); every choice invloves a range of alternatives (alternatives can be graded  in terms of benefits to be gained). The benefit lost from the next best alternative is the opportunity cost of the choice (consumers=what has to be given up when spending on an item/producers=buying a new


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