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The Economic Problem

🌍 The Nature of the Economic Problem​

The Basic Economic Problem​

  • Unlimited wants vs limited resources = scarcity.

  • Because of scarcity, choices must be made by:

    • Individuals (households)

    • Firms (private businesses)

    • Governments

Economics is the study of how scarce resources are allocated to meet unlimited wants and needs.

The 3 Basic Economic Questions​

All economies must answer:

  1. What to produce?

  2. How to produce it?

  3. For whom to produce it?

These questions guide resource allocation decisions by economic agents.

👥 Economic Agents​

  1. Individuals/households – decide what to buy, where to work, etc.

  2. Firms – decide what to produce and how to produce.

  3. Government – decides how to use public resources, e.g., building schools, hospitals.

📦 Goods and Services​

  • Goods = Physical items (e.g., furniture, toothpaste, pencils).

  • Services = Non-physical activities (e.g., bus rides, education, concerts).

❤️ Needs vs Wants​

NeedsWants
Essential for survival (e.g., water, food, shelter, healthcare).Not essential but desirable (e.g., video games, designer clothes).
LimitedUnlimited

⚖️ Types of Goods​

💰 Economic Goods​

  • Scarce in supply.

  • Human effort is needed to produce them.

  • Examples: oil, wheat, cars.

💨 Free Goods​

  • Unlimited in supply.

  • No opportunity cost.

  • Examples: air, rainwater, sunlight.

Be careful! A "free" government service (like free healthcare) is not a free good—it still uses resources and has an opportunity cost.