Economics

1. What is the ‘economic problem’? The fundamental economic problem is related to the issue of scarcity. Scarcity means that resources are limited and short in supply in the world (e.g. diamond). Because of limited resources and unlimited demands, society needs to decide how much to produce and distribute these relatively scarce resources. The basic economic problem can be define as what to produce, how much to produce and for whom to produce. Some countries are lucky to have great natural resources, whilst others do not. For example Africa and South America have little marketable resources. That means there are uneven distributions of resources. Sometimes suppliers have issues with shortage and surplus. A shortage is to do with the relationship between the amount the supplier are willing to supply and the given price in a specific time period. On the other hand, surplus is when an amount (such as an amount of goods) that is more than the amount that is needed. These concepts can be shown in a diagram:

A central concept in Economics is that of opportunity cost. This means if we do one thing, we cannot do another without losing something in the process. Choices have to be made by consumers, businesses and governments because of scarcity. For example, over six million people travel into London each day and they make choices about when to travel, whether to use the bus, the tube, to walk or cycle – or whether to work from home. A Production Possibility Frontier is a curve or a boundary used to show opportunity cost between two or more goods and services that can be produce. It represents the economic concept of choices and opportunity cost as it shows allocation of resources within an economy:
The diagram shows that an economy is productively efficient at point A, B and C but an economy is not productively in point X since resources are not being used efficiently in the production of both goods. Point Y represents the goals that the economy cannot