What is the Economic Problem?

The economic problem occurs when society has unlimited wants, yet limited resources available. This problem affects the economies of individuals, businesses and governments. Wants can be defined as materialistic desires of individuals or the community, which are desired because they give utility. Resources enable an economy to produce, and include the four factors of production: land, labour, capital and enterprise. These means fulfilling our desires are limited, so not all our wants can be satisfied with the limited resources available. Subsequently we must choose between them, and make choices in which our higher preference wants are given priority, and others are left unsatisfied.

Whenever we satisfy one want, we are foregoing the opportunity of another alternative want. Therefore the real cost of fulfilling our want is not the money we pay for it, but the alternate want that we give up. This cost is known as the opportunity cost, or economic/real cost, as it is sometimes referr...