Economics

Chapter 1
The nature of the economic problem
 Table of Contents

Introduction Economic goods and free goods

Limited resources and unlimited wants

Exercises
○ The economic problem
○ scarcity
Introduction
Do you have everything you
would like to have?

Once your need for food,

cloth, a new laptop, a new
car is met, are you going to
stop wanting more?
 Wants are unlimited!

What are wants?

No
- Desires for goods and services

This chapter will help us to look at why we

can’t fulfill everything we desire (want)
 01
Limited or
Finite resources
What stops people enjoying all the products they would like to have
is a lack of resources to
produce them. Resources (factors used to produce goods and
services), including workers and machinery, are scarce. This means
that they
are limited in supply. Do we remember how goods or services can
be limited in supply? What happens to the oil suppliers?
 Limited supply
The suppliers can sell only when the price is
higher than the production cost. If the price
is not high enough to make profit, they can
$55 not enter the market. For oil suppliers, the
supplier in Saudi Arabia can enter the
market with oil price as low as $5, because
the cost to extract oil in QSA is as low as $2.
Whereas, the cost is lot higher in Alaska,
which is up to $15. The cost for oil suppliers
in Atlantic rigs can be high as $20 per barrel.
So, with a lower price as $5 per barrel,
suppliers from Alaska and Atlantic rig can
not enter the market. This results into limited
supply of oil.
0 5 barrels
 Hmm…..
So….
Thus, the economic problem (unlimited
wants exceeding finite resources) of not
being able to satisfy everyone’s wants
arises because of this scarcity (a situation
where there is not enough to satisfy
everyone’s wants).

The supply of oil becomes limited.

Do the wants for oil become limited
too?

NO!
 The continuing
nature of the The economic
economic problem problem in
different context
As consumers, we cannot have
Scarcity continues to exist. More goods
everything we want. We have limited
and services are being produced today
incomes. What choices a student have
than ever before, but the growth in
to make? What is the benefit we could
wants is exceeding the growth of
have gained from an alternative use of
economic resources. People still want
the same resources is called?
more products than the resources
available can produce. Over a period of
time, wants continue to grow and
change.
Practice
exercise
Economic Goods and Free Goods
Economic goods requires resources to produce them and so they are limited in supply.

For example, a carpet is an economic good. The material and labour used to produce it could have been used
to make another good (or goods). It is easy to find examples of economic goods. Almost every good and
service you can think of is an economic good. Your education is an economic good, since your teachers and
the other resources used to provide it could have been employed for making other products.

Free goods are much rarer. When most people talk about free goods, they mean products they do not have to
pay for. These are not usually free goods in the economic sense since resources have been used to produce
them. Economists define a free good as one that takes no resources to make it.

It is hard to think of examples of free goods. Sunshine is one such example, so is water in a river. However, as
soon as this water is processed for drinking, or TIP used for irrigation of fields, it becomes an economic good.
Practice exercise
Reflection