The main premise of economic problem is that human needs and wants are unlimited but resources are limited in nature. Thus, scarcity of resources which means that in order to produce one good, you have to sacrifice other good.

1. BASIC ECONOMIC
PROBLEM:SCARCITY
ANDCHOICE

2. Scarcity and
Choice
Goods are scarce
because the
resources that are
used to produce
goods are scarce.
All resources are
scarce, so a decision
to have more of one
thing is a decision to
have less of
something else.
The exercise of
choice implies the
sacrifice or forgoing
of some other need
or want.
Cost of any
decision is its
opportunity
cost –value of
the next best
alternative that
is given up.

3. Basic
Economic
Problem

4. WhatTo
Produce?
The problem of “what to produce” involves
the selection of goods and services to be
produced as well as quantities in which they
should be produced.
As the available resources are limited, so all
the goods can't be produced in the quantity
desired by us. Hence this problem.

5. HowTo
Produce?
Involves which production method to use
in producing the goods and services.
• Labour IntensiveTechnology: This
technology requires more labour & less
capital.
• Capital IntensiveTechnology: This
technology requires more capital & less
labour.
• Capital intensive technology will lower
the cost and increase the speed of
production.
• On the other hand, labour intensive
technology provides more employment
(jobs).
There are
basically
two types of
technology.

6. ForWhomTo
Produce?
 This problem is related to the distribution of goods & service in the
economy.
 It is related to the choice between :-
 Production of goods and services for the richer section of society.
Or
 Production of goods and services for the poorer section of society.
 Production of goods and service for poor leads to maximum social
welfare, whereas production of goods and services for rich leads to
more profit.

7. Efficiency of
Production
The level at which the economy can no longer
produce additional amounts of a good without
lowering the production level of another product.
This happens when an economy is operating
along its production possibility frontier.
Any point below the production possibility
frontier indicates productive inefficiency.

8. Efficiency of
Production
 Points B, C and D are all
productively efficient, but an
economy at A would not be,
because D involves more
production of both goods.
 Point X cannot be achieved.

9. Economic
Growth
Economic growth is an increase in the total
output of the economy.
It occurs when a society acquires new
resources, or when it learns to produce more
using existing resources.
The main sources of economic growth are
increased productivity (efficiency) of labor
and technological advances.

10. Economic
Growth
• Outward shifts of the
curve represent
economic growth.
• An outward shift means
that it is possible to
increase the production of
one good without
decreasing the production
of the other.