In this article, we will explore the main reasons for the existence of economic problems. These reasons are universal and apply to all economies, individuals, organizations, and countries. The primary reason for economic problems is scarcity of resources, which means that resources are limited in relation to their demand, and the economy cannot produce all that people want. In the following paragraphs, we will discuss the other two reasons – unlimited human wants and alternate uses – in detail.
1. Scarcity of Resources
Resources such as land, labor, and capital are scarce in all economies, and this scarcity is the basic reason for the existence of economic problems. If resources were not scarce, there would be no problem. However, since resources are limited, the economy has to make choices about how to allocate them. This scarcity of resources applies to all individuals, organizations, and countries.
2. Unlimited Human Wants
Human wants are never-ending and cannot be fully satisfied. As soon as one want is satisfied, another new want emerges. Since resources are scarce, it is not possible to satisfy all human wants. Moreover, human wants differ in priorities, i.e. some wants are more important and urgent than others. This difference in priorities leads people to allocate their resources in order of preference to satisfy some of their wants. If all human wants were of equal importance, it would be impossible to make choices.
3. Alternate Uses
Resources can be put to various uses, which makes choice among resources more important. For example, petrol is used not only in vehicles but also for running machines, generators, etc. This means that the economy has to make choices between the alternative uses of the given resources. The opportunity cost of using resources for one purpose is the value of the next best alternative foregone.
|Main Reasons for Economic Problems|
|Scarcity of resources|
|Unlimited human wants|
|Alternate uses of resources|