Basic Economic Ideas

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Topics: Economics
Basic economic ideas
Scarcity, choice and resource allocation
– Meaning of scarcity and the inevitability of choices at all levels (individual, firms, governments)
– Opportunity cost
– Basic questions of what will be produced, how and for whom
Unlimited Wants

Human beings, in order to survive need a lot of things. Some of these things are very important for our existence. For example, food, clothing, water, shelter and air. These things can be classified as Needs. Apart from this there are things which are needed by us but they are not important for our survival and we can live without them also. For example, going on an expensive holiday, owning a 57 inches Plasma TV. These are known as Wants. This list is never ending and is continuously increasing.

Limited Resources

On the other hand, we have limited resources to produce these goods and services we want. There are not enough car factories to provide cars to everybody on earth. Everything on this planet has some limits except for our Wants.
When unlimited wants meet limited resources, it is known as Scarcity.

The Economic Problem of Scarcity

The fundamental problem of economics is that we have unlimited wants, but limited resources to satisfy these wants. When wants exceed the resources available we have scarcity. Scarcity occurs because human wants exceed the limits of available resources. Economics deals with the basic fact that scarcity exists in our everyday lives and in our economy. Resources such as raw materials are in finite supply and must be allocated to their best use. Virtually all resources are scarce, meaning that more of them are desired than is available. Economics is concerned with the way people have to make choices in order to overcome the problems of scarcity.

Inevitability of choices

Each and every level of economic agent (individuals, firms or government) have to make the choices as all of them are confronted with central economic problem (scarcity). Government

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