Basic Problems of an Economy

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The basic economic problem is the problem of relative scarcity and choice. Human wants are unlimited, but resources are limited, so an economy must decide how to use available resources in the best po…

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Scarcity is the situation when people's wants exceed their resources. It is the fundamental problem of every society and applies to rich and poor alike.

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The economic problem arises because of three facts: human wants are unlimited, resources are limited, and resources have alternative uses. These forces create the need to choose among different uses o…

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Factors of production are the productive resources of a society: land, labour, capital and entrepreneurship. They are used to produce goods and services.

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Resources are scarce because their supply is limited while human wants keep growing. Land is limited by area, labour by population, and capital and technology by the inputs needed to produce them.

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Choice means giving up one thing in order to get another. Because resources are limited and can be used in different ways, every individual, family, and economy must choose what to satisfy now and wha…

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The three fundamental economic problems are: what to produce, how to produce, and for whom to produce. Every economy has to answer all three.

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What to produce means deciding which commodities and services should be produced and in what quantities. It is a problem of resource allocation because resources must be divided among different goods …