Resources are limited - this is the concept of scarcity
Businesses need to choose which resources to use and how to utilise them – this is the concept of choice
Scarcity and Choice
Fundamental to this problem are the concepts of scarcity and choice.
The economic problem looks at:
- What goods or services the economy should produce
- How these should be produced
- For whom these goods / services should be produced for
What Goods and Services should be Produced?
- As resources are scarce there needs to be a choice of what should be produced
- Need to decide what types of goods and services an economy should produce e.g. agriculture or leisure
How should Goods and Services be Produced?
- What are the best ways of producing the chosen goods / services
- This looks at production processes
- Decision whether to use labour or capital intensive methods
For Whom should Goods and Services be Produced
- Should everyone receive goods / services in the same amount?
- Should some people receive more than others?
- Should goods / services be allocated by peoples ability to pay or by other factors?
