BASIC ECONOMIC PROBLEM

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Topics: Economics
BASIC ECONOMIC PROBLEM

Scarcity is one of the most basic economic problem that we faced. Why we run into scarcity because we are in a society with unlimited wants, but limited resources. Therefore, we have to choose, to make trade-offs. We have to efficiently allocate resources, and we have to do those things because resources are limited and cannot meet our own unlimited demands.

Choice and opportunity cost are two basic concepts in economics. Because of scarcity, consumers, businesses and governments have to make some choices. Companies choose how can they use their workers and equipment in the best way, government choose how best to use the taxes, etc. And the opportunity cost is the cost of an alternative that must be forgone in order to pursue a certain action.

In order to solve the problem of scarcity all societies, must answer three basic questions. Firstly, "What to produce?". to satisfy people's needs, societies have to decide the best combination of goods and services, like how many resources should be distribute to consumer goods, how many resources should provide into capital goods, etc. Secondly, "How to produce?". Societies also have to decide the best combination of factors to create the output of goods and services that we need. The last question, "From whom to produce?". Societies need to decide that who will get the output from the country’s economic activity.

The demand and supply shows the market situation, when supply becomes balanced with demand, the market is reached the equilibrium. At equilibrium, resources are used at their maximum efficiency, therefore, when the market is disequilibrium, sellers or government usually use some ways like price mechanism, to let the demand and supply of the market reach to the equilibrium. For example, if there are a shortage in a market, that consumer are willing and able to buy more or a good or service than suppliers are willing and able to produce. The price will rise, changing both quantity

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