THE ECONOMIC PROBLEM
All economies have different amounts of factors of production available to them to produce output to satisfy peoples desires. These resources are scarce or finite, the working population of the UK is around 28 million people.
Scarce resources produce economic goods because there is only a limited amount of them available, eg cars and cycles. If a country uses its scarce resources to produce more cars at the expense of cycles, an opportunity cost is incurred (see opportunity cost)
Some resources are so plentiful that they are called free goods, ie there is enough for everyone to consume, so no opportunity cost is created when we breathe air (why do you think clean air is slowly becoming an economic good?)
The goods and services produced from these scarce resources are used to satisfy people's desires (needs and wants). These desires are said to be insatiable or infinite because we always want more of them.
This leads onto the basic economic problem which all economies have to face:
ECONOMIC PROBLEM: not enough resources available to satisfy everyone's desires
Economics therefore is concerned with finding ways of allocating (using) these scarce resources to satisfy the desires of everyone. (see economic systems). Choices have to be made between different uses of resources because there is not enough to go around to satisfy everyone. (see opportunity cost )