Economic problem arises because we face scarcity, namely limited resources to satisfy unlimited wants and needs. Economics studies how to allocate limited resources to meet human needs and wants.
All humans have needs and desires.
- Needs are things that are essential and cannot live without
- Wants are the desire to have something that does not currently have.
We also often associate the term with unfavorable economic conditions during:
- Hyperinflation, where prices of goods and services soar uncontrollably
- Recession, when economic growth is negative, and the unemployment rate is high.
The basic question of economic problems
We all have unlimited desires. That’s right because we all want beyond our current capabilities. For example, you want a sports car. You can’t buy it right now because you don’t have enough money.
In that case, a sports car is the item you want. And money is your resource. Limited money certainly cannot fulfill your desires.
In economics, we call this problem “scarcity“. It happens when limited resources have to fulfill unlimited desires. And, scarcity raises three basic questions:
- What goods and services do we need to produce?
- How to produce them?
- For whom should we produce it?
