Basic Economic Problems:

Scarcity

Economic scarcity means that people do not have as much as they desire. The problem of scarcity arises as a result of the fact that, at any point in time, the productive resources available in any soceity are limited, whereas human wants are unlimited. It follows that the amount of goods and services that can be produced are limited and inadequate to meet human wants.

Therefore, every society must resolve four fundamental economic questions.

(i) What is to be produceed? Every society must determine in some manner what goods and services and how much of each to produce during any given period of time.

(ii) How is the output to be produced? Each firm must decide how to cmpbine the inputs to achieve optimal resources allocation i.e. the manner of combination of factors of production in order to produce quantum of goods and services.

(iii) For whom to produce? That is, for which category of consumer is the goods being produced. Is it for the young, the old or for both categories?

(iv) How to facilitate future growth? The resources must be utilized at a rate that would enhance future production possibilities.