The Nature of Economic Problem

Keeping in mind the meaning/definition of economics, let us see why we study economics. It is because of the basic economic problems facing every individual, society and country as well.

Scarcity

It is a known fact that human beings have unlimited wants. Wants are desires of oneself to do or have something. When one want it satisfied, another comes up and there is no end to it. To satisfy those wants we use ‘resources’. The problem, however, is that the resources we use to satisfy those wants are limited. Scarcity means limitation of supply of resources in relation to their wants

However scarcity does not mean that something is available in small quantities. It actually means that the available quantity is not enough to satisfy their appropriate wants. Because of this scarcity, we are all forced to make ‘choices’.

Choice

When we do not have enough resources to satisfy all our wants, we are forced to make choices. We choose which want we will satisfy with the available resource. For example, Habeeb had MRF25. He wanted to eat a fried noodles and would like to buy a small office notebook too. However, the money he had was not enough to buy both. He could buy either a fried noodles or the notebook, but not both. What would he choose to buy? He was hungry, therefore chose to eat the fried noodles and forget about the notebook. His choice was fried noodles.

Opportunity Cost

If we decide and choose which want to satisfy with the available resource, then there are other wants we have to leave unsatisfied. We have to forgo something in order to satisfy a want. The want that is forgone is called the ‘opportunity cost’. It is also known as ‘the next best alternative’.

Economic goods are scarce goods

If the resources were unlimited in supply, there would be no need to study economics. An economic good is anything that has a money value. Money value exists because it is scarce. Therefore anything that is not scarce has no economic value.

Next Topic: Production Possibilities Frontier

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