The Basic Economic Problem 

Here, we have focused very much on advanced economic concepts but haven't really looked at what economics aims to achieve in our society. Today we will look at what is known as the "basic economic problem". 

What is the Basic Economic Problem?

This question founds the core concepts of economics. There are infinite wants in our society, however resources are scarce. 

Limited resources can be of two different types:

1. Some things, like machines, can only be used for one purpose, hence are limited in use. 
2. Some things have finite quantity, so cannot be supplied to everyone who demands. Eg Oil.

Since resources are limited, sacrifices have to be made. Deciding between two different economic possibilities is known as making a choice.

Opportunity cost is the benefit lost from the next best alternative after making the choice.

The three questions to solve the basic economic problem:

1. What to produce?
2. How to produce
3. For whom to produce

By answering these questions, economies can make decisions which will lead to answer the economic problem.

Here is a diagram illustrating the basic economic problem: