Producing goods and services that can satisfy the changing needs and desires of the consumers is the primary objective of economic activities. But, queries like what to produce, how to produce, for whom to produce, and how to satisfy unlimited wants with limited resources have made it difficult for producers to meet their objectives.
On the other hand, consumers also struggle continuously to trade-off between vast options available in the market and the objective that is actually needed. Thus, there exist some basic issues in the economy which are described in brief here.
Scarcity, also known as paucity, is a situation where resources, products or ability to fulfill the desire is present in small or insufficient quantities. In other words, it is the state where an economy fails to fulfill wants and needs of humans due to inadequate productive resources.
It is by nature that human always desires for more. Their needs are ever growing and their perception regarding satisfaction is always changing. This dynamism in human is the reason that scarcity has become one of the fundamental problems in the economy because resources are limited on this world regardless the desire of producers and consumers.
Higher the amount of production, greater will be the need of a resource. But, since the resources are limited, the issue of efficient allocation of resources arises with scarcity.
Allocating more resources on any one type of good would require withdrawing of resources from the share of other goods. But, since all goods play a vital role in the economy, it becomes a problem to determine the optimal rate of production ratio between the two.
An alternative may be defined as the availability of two or more possibilities when one has to pick anyone.
A producer always has to pick the best alternative from a range of options. He has to determine what to produce, for whom to produce, how much price to charge, and so on. On the other hand, a consumer also needs to pick the best alternative from choices like which product to purchase, where to invest, etc.
For the economy to attain balance producers must extract maximum profit from what they decide to produce and consumers must achieve the highest satisfaction from the goods and services they pay for. With the issue of scarce resource existing in the economy, making a good choice that helps to obtain maximum utility is a challenge for both producers and consumers.