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There are
only a limited amount of resources on the planet, e.g.:
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Economists
describe these resources as being scarce and call them economic goods. Not
all resources are scarce, these are called free goods, e.g.:
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Infinite wants
Humans
have a minimum level of needs which are necessary for survival, food,
shelter, heat and clothing. Despite this people would rather enjoy a higher
standard of living, this is because we all have an unlimited number of wants.
The economic problem
The
fact that resources are scarce and our wants are infinite gives rise to the
basic economic problem. How do we decide to allocate the limited resources?
Economic agents (individuals, firms, governments etc.) have to make choices
regarding what to do with their limited resources.
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