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The basic economic problem is that resources are scarce relative to the purposes to which they could be put. As a result choices have to be made about how to use resources. The basic economic problem is thus frequently referred to as 'scarcity and choice'. A resource is a means of support. A resource from the point of view of business studies can be regarded as any feature of our environment that helps to support our well-being. There are two main types of resource:1. Physical or natural resources - such as oil, climate, water, minerals, forests and fisheries.2. Human resources - people and their various skills.If we were to take stock of the world's existing bundle of resources we would find that there are severe limitations to its ability to meet our infinite wants.


Scarcity


Scarce resources can be broken down into four key ingredients: land, labour, capital and enterprise. Land includes all natural resources; labour includes all physical and mental effort; capital includes machinery and other items that go into further production; and enterprise is the art of combining the other three factors in the production process. Scarcity can be seen as resulting from the lack of availability in resources, from people's insatiable wants, or from a combination of the two.Most large multinationals have cut down the range of brands they produce in recent years. For example, BIC the producer of pens, lighters, and razors has consolidated around 150 lines from a much larger range. This is so that it doesn't spread its resources too thinly in competing in global markets.Because resources are scarce and most of our wants are extensive, a choice has to be made about how to use scarce resources in the best way. This rule applies to organisations, society as a whole, and to individuals.


All 3 problems are more clearly explained using a ppf/ppc:

1) What to produce:This problem is what should the economy produce in order to satisfy consumer wants (as seen by demand curves) as best as possible using the limited resources available. If a country produces goods in a way that maximises consumer satisfaction then the economy is allocatively efficient.

2) How to produce:This problem is how to combine production inputs to produce the goods decided in problem 1 as most efficiently as possible. An economy achieves productive efficiency if it produces goods using the least resources possible. A productively effiecient economy is represented by an economy that is able to produce a combination of goods on the actual curve of the PPF.

3) For whom to produce:Should the economy produce goods targetted towards those who have high incomes or those who have low incomes. What sort of demographic group should the goods in the economy that are produced be targetted towards? If the economy is addresses this problem then it has reached preto efficiency or pareto optimality.

If all three problems are addressed at any one time then the economy has achieved static efficiency. If the economy achieves static efficiency over a period of time then it is dynamically efficient.All these problems are focused around the problem of unlimited wants and limited resources. Where resources are the fators of production (such as labor, capital, technology, land..) which are used to produce the products that satisy the wants.