What is the basic economic problem?


Quick Answer

The basic economic problem is scarcity, which is the idea that human beings want more things than are available to them. In other words, there are a limited amount of resources, so people are unable to attain everything they desire. This forces humans to make choices, the study of which is the core of economics.

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What is the basic economic problem?
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Full Answer

The relationship between scarcity and choices can be seen in many everyday examples. For instance, when a consumer contemplates a purchase, he must make a choice between buying the object and losing the money spent on it, or not obtaining the object and keeping the money. In either case, something is gained and something is lost. The thing that is lost or foregone when making a choice is known as the opportunity cost, another basic economic concept.

Conversely, if there was no scarcity, there would be no need to make choices that involve opportunity costs. For example, if there was a machine that could produce anything that a person desired, then the only limit to what that person could own would be the person's imagination. It is easy to see that money would not be necessary if such a machine existed, and thus the science of economics would be radically altered and cease to exist in its current state. This is why scarcity is considered to be the fundamental problem of economics.

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