The basic economic problem of scarcity refers to the situation in which finite factor inputs are insufficient to produce goods and services to satisfy infinite human wants. It is incontrovertible and irrefutable that all societies face the basic problem of scarcity due to limited resources and unlimited wants. Scarcity makes it necessary for us to make the most of what we have. In trying to obtain the highest level of satisfaction from available resources, good or rational choices have to be made. The concept of choice applies to all decision-making units.
We are continually uncovering new wants and demands. Scarcity implies that not all of society’s goals can be pursued simultaneously, as the many different kinds of resources (production factors) are available only in limited amounts. The various factors of production refer to the inputs used in the production of goods and services. They are divided into four broad categories: land, labour, capital and entrepreneurship. Labour refers to human effort-physical and mental-which is directed to the production of goods and services. Normally the labour force of a country consists of everyone of the working age (14-64), and this form of resource is largely dictated and governed by the demographic distribution within the country (or any other geographical entity), and is therefore restricted by dependency ratio. Land refers to all the productive resources supplied by nature, and various aspects of such a form of resource are limited and exhaustible. Capital is a man-made resource used in the production of goods and services, which includes machines, tools, and buildings. The production capacity of a country therefore, is dependent on the amount of capital the country possesses. Entrepreneurship is a human resource that is separate from labour. An entrepreneur is one that performs the functions of organizing and managing the factors of production, of innovating new products and ways of production and he takes the...
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