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Nature of economic problem

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The nature of the economic problem — quick explainer

Basic economic problem
  • People’s wants are unlimited but resources are limited.
  • So we can’t satisfy everyone’s wants at the same time.
  • Example: A school budget can’t buy every wish: lab kits, sports gear and all new books.
Scarcity (definition)
  • Not enough land, labour, capital or enterprise to produce everything.
  • Forces choice and creates opportunity cost (what you give up).
Economic goods
  • Use resources to make them; supply is limited.
  • Have a price and an opportunity cost.
  • Examples: phones, bread, bus rides, electricity.
Free goods
  • Require no scarce resources (or are so abundant that no sacrifice is needed).
  • No price and no opportunity cost.
  • Examples: sunlight; fresh air in open, unpolluted areas.
  • Note: If a “free” good becomes scarce (e.g., clean water in drought), it becomes an economic good.
How it all connects
  • Scarcity ? choice ? opportunity cost.
  • Therefore most things are economic goods; only truly abundant items are free goods.

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