The Economic problem is a very basic concept that is familiar to many Social Sciences students. It basically revolves around the concept of unlimited needs and limited resources. Now before going into the details I would apprise you of the above mentioned things.
A need, as you may all know is something without which survival is not possible, in other words it is a good or service necessary for us to live. Common examples are Food, Clothes and Shelter .
A want is something slightly different from a need. You see, when we need something, we can’t live without it but when we want something we consider it peripheral to our existence, or simply, we do not require wants for our survival but for the purpose of luxury. Water is a need but a beverage i.e. Pepsi is a want.
So now that I have made clear to you all the meanings of needs and wants, let me come to the concept of resources. A resource may be in the form of a good( tangible) or a service(intangible). It is something which satisfies our needs and wants.
What is The Economic Problem?
“The economic problem results from there being too many wants and needs but too little resources to satisfy those needs.”
Our wants are unlimited. Think of it yourself; if you were to write down a wish list, which most of you must have done already, your wishes or wants don’t seem to end, however much you write.
Opportunity Cost
Now when you have unlimited needs and demands but less resources to quench your thirst, that is when opportunity cost steps in.
For instance, if I have 120Rs.(Limited resource) and I want a DVD as well as a haircut(Unlimited wants). I would, consequently, have to decide whether to buy a DVD or get a haircut because I can’t afford both. If I buy the DVD the haircut becomes the OPPORTUNITY COST and if I get a haircut then the DVD becomes the OPPORTUNITY COST.
From this, we can deduce that Opportunity cost is the demand given up or sacrificed in order to satisfy another demand.
I hope this has helped to get the concept through your head. So, now we have learnt what a want is, what a need is, what a resource is and what The Economic Problem is; last but not the least what an opportunity cost is.
Resources in Perspective
Earlier on, we had discussed what a resource was: It is a product or a service needed to satisfy a want or a need. That was just a general definition, however in business, we need to study the word RESOURCE in more detail.
Resources have been classified into four types.
Land: It consists of all mineral resources, renewable as well as Non-renewable e.g. Petroleum, water
Labour: It consists of all human resource, Skilled and Unskilled, Manual and Non-Manual.
Capital: It is the finance or the money needed to start up a factory or other business.
Enterprise: The skill and risk-taking ability of a person to manufacture products and market them successfully is known as Enterprise.
It is with these Factors of Production that a business acts to satisfy people’s demands.
Therefore Business Activity is any activity that combines factors of production to make products and resources appropriate to the customer’s demand with a view of making profit.
What comes to your mind when I say the word “Business”? Probably a big Multinational company with lots of white-collar workers, well the truth is hardly close. A business could be anything from a small street vendor to a Large Multinational; the only thing similar between them, the act of combining factors of production profitably for the production of services and goods.
Well guys, that is all for now, I hope you found the information easy to understand. But don’t get so happy now , there is a Q/A section ahead.
QAS
Q:1 What is the Economic Problem?
Ans. The Economic Problem arises from the presence of unlimited wants and limited resources to satisfy them.
Q:2 What is the importance of Business Activity?
Ans. Business Activity involves combining of Factors Of Production for the manufacture of products and services to satisfy consumer’s wants in a profitable manner.
Without business activity everyone would have to be self-sufficient and there will be no specialisation as everyone will have to do everything to survive from foraging for food to sewing their clothes to making furniture. This would be an inefficient use of resources and fail to satisfy wants.
Without Business Activity, there will be no concept of employment, of economy, of money itself. Bartering would have to be done and items would have to be exchanged leading to a very basic economic lifestyle with serious lack of development.
This means that Business Activity is very necessary for a society to develop and for resources to be utilised efficiently.
For further reference you can refer to:
- IGCSE Business Studies Chris J. Nuttall