BASIC ECONOMIC PROBLEM

WANTS AND NEEDS

NEEDS are basic neccessites of life for example water, shelter and food ( sugar, rice etc) Wants are for luxurious item for example ( Moblie phones, Headphone, Television ) etc.

Resources includes goods and services which satisfies human needs and wants.

The economic problem, sometimes called the basic, central or fundamental economic problem. It asserts that there is scarcity, or that the finite resources available are insufficient to satisfy all human wants.

For this reason allocation of recources takes place. Unlimited wants with scarcity makes it problem for the government and private organization to allocate resources. Therefore three questions are determined in allocating resources

1. WHAT TO PRODUCE
2. HOW TO PRODUCE
3. FOR WHOM TO PRODUCE

EXAMPLE 1

Today world is facing the major economic problem that is oil problem, oil is a scarce good while wants for oil is unlimited ( example Petrol demand, diesel demand etc).

EXAMPLE 2

For example government wants to build some place for the people, they can build hospital and park but the problem is that land is small for these to be built therefore government have to make choice which involves opportunity cost which is the cost of foregone goods. If the government choose to build hospital opportunity cost will be the cost of building park. Some people in that area may demand for the park, if the government builds the hospital conflict of interest may arise because some may demand for the hospital while some may demand for park. Therefore before making any decision government or private producer must think what to produce, how to produce and for whom to produce.

You can also take example from your daily life, you also make choices in your life. If you buy something first you see your ability to spend. If you want to buy two chocolates one chocolate of Cadberry cost $ 10 so the total cost will be $ 20 but if you have only $10, you will be able to buy only one chocolate cost of choosing other chocolate will be the opportunity cost ( cost of foregone goods )