Scarcity. The Basic Economic Problem

Scarcity

Every day on the nightly news or in the newspaper or in a magazine everyone seems to have something to say about the status of the economy. The study of economics focuses on the goods and services produced by an economy. Everyone: individuals, families, businesses, educational/religious/political institutions even choose. Remember, you even make a choice when you choose not to choose.

Like you and me, everyone cannot have everything. They must decide between the needs and the wants. Even the American government, one of the wealthiest in the world, cannot have everything. People have certain needs (necessities) such as food, clothing, and shelter. There are other goods and services which one might call wants (luxuries) which are not needed for survival but which make life easier or more enjoyable. Together, this represents a large quantity of goods and services that people in a society would like produced. But limited resources mean that we can't have everything.

The Problem of Scarcity

Our economic choices are limited in terms of human wants. Our economic choices are limited by factors of production: natural resources such as minerals, land, and forests; labor, in form of doctors, machinists, computer programmers, etc.; capital, the means for production like factories and machines; and the entrepreneurial ability of those who wish to try running a business. This called the problem of scarcity.

The Basic Economic Problem

The first thing that people often think of when they think of economics is "money." That idea isn't wrong, but it is incomplete. Economics is the study of how a society uses limited resources to produce and distribute goods and services. For example, capitalism and socialism are two types of market economic systems for how supply is generated, what demands are necessary, and how goods and services are distributed and consumed.

Economics as a discipline is divided into two broad subdivisions, microeconomics and macroeconomics. Microeconomics is the study of the economic behavior of individual households and firms and the determination of the market prices of individual goods and services. Macroeconomics is the study of large scale economic phenomena, especially inflation, unemployment, and economic growth.
Clarifying the idea of economics as a study of how limited resources are used to produce and distribute goods and services is the etymology of the term. Economics comes from the Ancient Greek term οἰκονομία from οἶκος (oikos, "house") and νόμος (nomos, "custom" or "law"). In other words, the rules of the house.