SCARCITY

The Basic Economic Problem

 Atany moment in time in an economy,

output is limited by the resources and
technology available, ; there is, therefore,
a basic condition of scarcity
Scarcity

 isa situation where there is not enough to

satisfy everyone’s wants
Why does Scarcity Exists?

 Resources (factors of production) are

finite/limited.
- Land
- Labor BUT. . .
- Capital
- enterprise
 Wants are infinite/unlimited.
As a consequence . . .

 Scarcity
forces individuals/ society to
make choices.
 Rational Choice
 how to use it efficiently
In making a choice. . .

 Individuals
need to pick one and give up
the other alternatives.
 Givingup the other alternatives is called
trade off.

 Opportunitycost refers to the (value of

the) (second) best alternative forgone.
This choice will be in terms of:

 What to produce?

 How to produce? And;

 For whom to produce.

Essay Questions

1. Why do all countries face

the basic economic problem?
(4 marks)
Answer

 Explanation:
• there are finite/limited resources and;
• there are unlimited wants;
• therefore there is a basic situation of
scarcity
• so there is a need to exercise choice.
Essay Questions

2. Explain the nature of the

economic problem. (4 marks)
Answer
 The nature of the economic problem:
• at any moment in time in an economy, output is limited by the
resources and technology available; there is, therefore, a basic
condition of scarcity.(1)
• the wants of consumers are unlimited or infinite
• the ability of the resources to satisfy those wants, however, are
limited or finite (1)
• there is, therefore, a need to make a choice as a result of this
scarcity (1)
• this choice will be in terms of what to produce, how to produce
and for whom to produce.(1)
Make a Mind map on Basic Economic
Problem of Scarcity (5 Marks)