The nature of the basic economic problem
The economic problem
- Resources are finite; people's wants are unlimited.
- So resources are scarce — this is scarcity, the root of all economics.
- Scarcity forces everyone to choose: consumers, workers, producers (firms), governments.
Practice
The basic economic problem arises because:
Scarcity — unlimited wants and finite resources — is the root economic problem.
Practice
Scarcity forces consumers, workers, firms and governments all to make choices.
Because resources are limited, every decision-maker must choose.
Economic vs free goods
- an economic good is scarce, so it has an opportunity cost (most things).
- a free good isn't scarce — no opportunity cost (air, sunlight).
- A "free" gift is not a free good — resources were used to make it.
Practice
Which is a free good?
A free good (air) is not scarce and has no opportunity cost; a "free" sample used resources, so it is an economic good.
You've got it
Key idea
- scarcity = finite resources vs unlimited wants → everyone must choose
- economic goods are scarce (have an opportunity cost); free goods (air) are not
- choices are made by consumers, workers, firms, governments