Scarcity & the Basic Economic Problem

Vocabulary flashcards covering the lecture’s key economic terms: scarcity, needs vs. wants, factors of production, opportunity cost, and the three fundamental economic questions.

Economics

A social science that studies the day-to-day choices people make to satisfy unlimited needs and wants with limited resources.

Basic Economic Problem

The dilemma arising because human needs and wants are unlimited while resources to satisfy them are limited.

Scarcity

A condition in which available resources are insufficient to satisfy unlimited wants.

Needs

Items essential for survival, such as food, water, air, and shelter.

Wants

Non-essential desires people would like to have, e.g., cars or concert tickets.

Limited Resources

The finite factors of production—land, labor, capital, entrepreneurship (and time/money)—available to meet needs and wants.

Land (Natural Resources)

The ‘free gifts of nature’ not created by human effort, used in production.

Labor

All human physical and mental effort applied in the production of goods and services.

Capital

Man-made goods (machines, tools, factories) produced to help make other goods and services.

Entrepreneurship

The ability to organize land, labor, and capital, take risks, and seek profit by producing goods or services.

Absolute Scarcity

A situation where money exists to buy goods/services, but the goods/services are available only in limited quantities.

Relative Scarcity

A situation where goods/services are abundant, but buyers lack the money (means) to purchase them.

Choice

The act of selecting one option over others because resources are scarce.

Opportunity Cost

The value of the next best alternative that is forgone when a decision is made.

"What to Produce"

Fundamental economic question deciding which goods and services should be made available.

"How to Produce"

Fundamental economic question about which resource combinations and technologies to use in production.

"For Whom to Produce"

Fundamental economic question determining who will consume the goods and services produced.

Budgeting

Allocating limited money among competing needs and wants to make informed spending choices.