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Economic Problem

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The economic problem, sometimes called the basic, central or fundamental economic problem, is one of the fundamental economic theories in the operation of any economy. It asserts that there is scarcity, or that the finite resources available are insufficient to satisfy all human wants and needs. The problem then becomes how to determine what is to be produced and how thefactors of production (such as capital and labor) are to be allocated. Economics revolves around methods and possibilities of solving the economic problem.
In short, the economic problem is the choice one must make, arising out of limited means and unlimited wants. Contents [hide] * 1 Overview * 1.1 Opportunity cost and Production Possibility Frontier * 1.2 Needs * 1.3 Wants * 1.4 Choice * 2 See also |
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[edit]Overview
The economic problem is most simply explained by the question "how do we satisfy unlimited wants with limited resources?" The premise of the economic problem model is that wants are constant and infinite due to constantly changing demands (often closely related to changing demographics of the population). However, resources in the world to satisfy human wants are always limited to the amount of natural or human resources available. The economic problem, and methods to curb it, revolve around the idea of choice in prioritizing which wants can be fulfilled.. and how do we know what to produce for the economy...........
[edit]Opportunity cost and Production Possibility Frontier
The main theory to decipher what and how to prioritise these wants and needs is to look at the opportunity cost (looks at what good must be prioritised first according to needs and how efficiently that the good can satisfy infinite wants). A good way to look at this is the production possibility frontier (PPF),

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