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By the end of this topic, you should be able to:
Every single country in the world — whether rich or poor — faces the same basic problem in economics. That problem is this:
People's wants are unlimited, but the resources available to satisfy those wants are limited (scarce).
This conflict between unlimited wants and limited resources is called the fundamental economic problem.
Let's break this down carefully.
Resources are the inputs — the things used — to produce goods and services. In economics, we call these resources the factors of production (FOP). There are four of them:
| Factor | What it means | Examples | Reward earned |
|---|---|---|---|
| Land | Natural resources found in or on the earth | Oil, forests, farmland, gas | Rent |
| Labour | The physical and mental effort of people | Teaching, farming, accounting | Wages |
| Capital | Human-made tools and machines used in production | Factories, computers, machinery | Interest |
| Enterprise | The ability to take risks and combine the other factors to produce goods | A business owner starting a company | Profit |
💡 Key point: All four of these factors of production are scarce — meaning there is a limited amount of them. You cannot have an unlimited supply of farmland, workers, machines, or entrepreneurs. This is why the economic problem exists.
Wants are the desires people have for goods and services. Wants are unlimited — they never end. As soon as one want is satisfied, another takes its place.
Think about it this way: once you get a bicycle, you might then want a motorbike. Once you get a motorbike, you might want a car. Once you get a car, you might want a bigger, better car. Wants just keep growing.
Here are some more examples of how wants are unlimited:
No matter how much money a person has, there will always be something they want but cannot yet have. This is why economists say wants are unlimited.
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