what is the fundamental economic problem of economics
Hello,
Scarcity , or limited resources, is one of the most basic economic problems we face. We run into scarcity because while resources are limited, we are a society with unlimited wants. Therefore, we have to choose. We have to make trade-offs. We have to efficiently allocate resources. We have to do those things because resources are limited and cannot meet our own unlimited demands.
However, society is mostly dominated by people wishing to consume more goods and services than are available. Because there is a shortage of resources, economics considers:
- What to produce?
- How to produce?
- For whom to produce?
Without scarcity, the science of economics would not exist. Economics is the study of production, distribution, and consumption of goods and services. If society did not have to make choices about what to produce, distribute, and consume, the study of those actions would be relatively boring. Society would produce, distribute, and consume an infinite amount of everything to satisfy the unlimited wants and needs of humans. Everyone would get everything they wanted, and it would all be free. But we all know that is not the case. The decisions and trade-offs society makes due to scarcity is what economists study. An example of this is:
A firm produces both pens and pencils. In the market for pencils. The demand for pencils increases, which causes the price of pencils to rise, making this product more profitable. As a result of this, the firm wants to produce more pencils. However, because there is a fixed amount of capital to produce both pens and pencils the firm can only produce more pencils by reducing their production of pens.
Hope it helps.
Good Luck!
