Economic problem

The economic problem – sometimes called the basic or central economic problem – asserts that an economy's finite resources are insufficient to satisfy all human wants and needs. It assumes that human wants are unlimited, but the means to satisfy human wants are scarce.

Three questions arise from this:

'What and how much will you produce?' This question lies with selecting the type of supply and the quantity of the supply, focusing on efficiency.

e.g. "What should I produce more; laptops or tablets?"

'How do you produce this?' This question deals with the assets and procedures used while making the product, also focusing on efficiency.

e.g. "Should I hire more workers, or do I invest in more machinery?"

'To whom and how will you distribute the goods?' and 'For whom will you produce this for?' arises from this question. This question deals with distributing goods that have been produced, focusing on efficiency and equity.

e.g. "Do I give more dividends to stock holders, or do I increase worker wages?"

Economics revolve around these fundamental economic problems.

The economic problem is most simply explained by the question: "How do we satisfy unlimited wants with limited resources?" The premise of the economic problem model is that wants are constant and infinite due to constantly changing demands (often closely related to changing demographics of the population), but resources in the world to satisfy human wants are always limited to the amount of natural or human resources available. The economic problem—and methods to curb it—revolve around the idea of choice in prioritizing which wants can be fulfilled and what to produce for the economy.

Opportunity cost is the loss in terms of potential benefit had another action been taken. We make choices every day. We have to, as we have limited resources but so many wants. We therefore must decide which wants to satisfy and which not to. All choices involve giving something up. This leads to opportunity cost. This problem of 'what to give up' exists not only for consumers like us but for governments and businesses too.

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Wikipedia