The Basic Economic Problem: Scarcity
- The basic economic problem is that resources are scarce
- There are finite resources available in relation to the infinite wants and needs that humans have
- In economics, these resources are called the factors of production
- Due to the problem of scarcity, choices have to be made by producers, consumers and governments about the best (most efficient) use of these resources
- Economics is the study of scarcity and its implications for resource allocation in society
- In a free market, scarcity has a direct influence on prices
- The scarcer a resource, the higher the price for it will be
- The less scarce a resource, the lower the price for it will be
- Resources can either be renewable or non-renewable
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- Renewable resources can be used repeatedly and naturally replenished, for example wind generated electricity
- Non-renewable resources cannot be naturally replenished at a pace that keeps up with consumption. For example, oil and coal