Human wants are unlimited but resources are limited, creating scarcity. This scarcity means resources have alternative uses and choices must be made. To understand an economic system, three basic questions must be answered: what gets produced, how it is produced, and who gets what is produced. What gets produced deals with deciding which consumer and capital goods to make. How it is produced concerns efficiently using resources through techniques like labor-intensive or capital-intensive methods. Who gets what is produced involves distributing income through personal distribution between individuals and functional distribution between workers, landlords, and entrepreneurs.

1. THE ECONOMIC PROBLEMS
SCARCITY AND CHOICE

2. Scarcity and Choice
• Human wants are unlimited, but resources are
not.
Two basic characteristics of resources are
1.Scarcity(It is a situation when demand for a good exceeds it
supply.)
2.Alternative uses(Resources have alternative uses. For e.g - Land
may be used to grow wheat or rice or construction of
building.)
3.Choice(It is the consequence of scarcity. Choice emerges when
limited resources are used for satisfaction of unlimited wants.)

3. Scarcity and Choice
• Three basic questions must be answered in
order to understand an economic system:
– What gets produced?
– How is it produced?
– Who gets what is produced?

4. Scarcity and Choice

5. Scarcity and Choice
-What gets produced?
This problem deals with what to produce and what not.
For instance which of the CONSUMER GOODS are to
be produced and which of the capital goods are to be
produced.

6. Scarcity and Choice
• How is it produced?
This problem is concerned with efficient use of
resources. It implies more production at less cost.
Broadly speaking there are two techniques of
production.
a)Labour Intensive technique
b)Capital intensive technique

7. Scarcity and Choice
• Who gets what is produced?
The problem of distribution of production
implies the problem of distribution of income.
This problem has two aspects
a)Personal distribution
b)Functional distribution