The most basic problem in Economics is the problem of “scarcity”. This simply means that unlimited wants exceed the limited resources present in the economy. This is precisely what stops people from having everything they want.

The Never-Ending Nature of Scarcity

People have infinite wants. For example, if you have a cheap TV, you may want to purchase the latest model once it's released. But soon after, you may get bored with that as well and want an even brand-new TV. This is never-ending, thus explaining the continuing nature of scarcity. So choices have to be made and some goods have to be let go of; this concept is explained in depth in CH 3 “Opportunity Cost”.

Economic and Free Goods

What is the difference between the two?

To explain in simple words, economic goods are goods that require resources to be produced, so they are finite in supply and have an opportunity cost (check 1.3 to gain knowledge about opportunity cost). For example, a smartphone is an economic good — the resources used to make the phone could have been used to make some other goods. Almost every good is an economic good.

Free goods are goods that require no resources to be produced and have no opportunity cost. This includes sunlight; it doesn't require any resources to be made, and using it won't reduce the amount your friend can use, proving that such goods are unlimited in supply.

Definitions

Resources – Factors needed for the production of goods and services

Economic problem – The economic problem is unlimited wants exceeding finite resources

Scarcity – When there are not enough resources to fulfil people’s wants

Economic goods – Goods which require factors of production to be made, therefore have an opportunity cost

Free goods – Goods which do not require factors of production to be made and therefore do not have an opportunity cost

Summary

• People’s wants continue to grow.

• Resources such as workers, machines, and land are limited in supply.

• The economic problem is that unlimited wants exceed finite resources.

• Economic goods take resources to produce them.

• Free goods exist without the use of resources.

Written by Trishiv Ohlan

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