What's the (economic) problem?

One of my favourite questions to get as an Economics teacher is: what is Economics?

My answer?

Economics is all about trying to solve a problem. A very specific problem. The problem of scarce resources and unlimited wants.

Think about it this way. You want to learn a musical instrument. You want the instrument, you want a teacher, you want the time to practice and you want to get good. Look at all these wants.

But! You’ve got limited money (with which to buy the equipment and hire a teacher) and limited time (to practice and take lessons). 

Your wants are large but your resources are limited. 

In Economics, this issue is known as the economic problem. That is, how does a whole society solve the problem of scarce resources and unlimited wants? 

Essentially, if an economy (or an individual) can’t have everything it wants, it must choose. It must prioritise, it must select one course of action over another. 

If you want to practice the instrument, you’re going to have to sacrifice doing something else.

If a restaurant wishes to employ another chef, maybe it can’t buy a new oven at the same time. Not enough resources (money). 

Governments deal with the economic problem all the time. Let’s say the federal government wants to stimulate the economy, to boost aggregate demand and increase gross domestic product. To achieve this goal they would like to build new schools and hospitals, fix public transport, cut taxes and give everyone cash handouts...but they simply do not have the resources to achieve all these ‘wants’ with their scarce resources.

Next time someone asks you what Eco is all about, tell them it’s all about solving a problem.