The Economic Problem
The basic economic problem is that resources are scarce but wants are infinite.
- Unlimited/Infinite Wants
People have a limited amount of NEEDS which must be satisfied if they are to survive as human beings. Some are material goods, such as, food, liquid, heat, shelter and clothing. Others are psychological and emotional needs such as self esteem and being loved. People's needs are infinite. However, no one would choose to live at the level of basic human needs if they could enjoy a higher standard of living.
This is because human WANTS are unlimited. There is always something everybody wants more of, e.g., more food, a bigger house, a longer holiday, a cleaner environment, more love, more friendship, better relationships, more self esteem, greater fairness or justice, peace, or more time to listen to music, meditate or cultivate the arts.
- Scarce Resources
Scarcity means that economic agents, such as individuals, firms, governments and international agencies, can only obtain a limited amount of resources at any moment in time, e.g., a family has to live on a fixed budget; it cannot have everything it wants. A firm might want to build a new factory but not have the resources to be able to to do so. A government might wish to build new hospitals or devote more resources to its foreign aid programme but not have the finance to make this possible. Resources which are scarce as called ECONOMIC GOODS. Resources which are not scarce, such as, air/oxygen are called FREE GOODS.
- Production Possibility Frontiers (PPF)
Over a period of time, resources are scarce and therefore only a finite amount can be produced, e.g., an economy might have enough resources at its disposal to be able to produce 30 units of manufactured goods and 30 units of non manufactured. If it were now to produce more…