The Economic Problem

Written by Anuar Burkitbayev

Imagine that you are the manager of a firm and you get word that people want a certain new profitable product. Instinctively, you would want to produce that good because it would bring in profits. That is until you realize that you cannot produce that product without hindering the production of your other, already established, products (which are also profitable and needed) because you only have a certain amount of resources at your disposal. This is an example of the basic economic problem. 

The basic economic problem asserts that humans will always have unlimited wants* and needs* (meaning that they would always want goods and services) but the economy’s limited/scarce resources cannot satisfy all of those wants and needs.

This is the main principle around which economics works. Firms know that they cannot satisfy everyone and so, they have to allocate their limited amounts of resources efficiently in order to generate the highest amount of profit. This concept also introduces the three main questions, that firms need to answer before producing a good, which are: “What to produce?”; “How to Produce?”; and “For whom to produce?”