If we look around, we see the farmers tilling their field, the workman working in the factory, the clerk at his desk, the doctor attending to his patients, the teacher teaching his students and so on.
The basic purpose of everybody is to earn an income in exchange of his service. We cannot find any single individual, family or country in the whole world, which can fulfill all his wants. It clearly shows that wants are unlimited and means are limited.
According to Seligman, the starting point of all economic activities is the existence of human wants. The purpose of all economic activities is the desire to purchase goods to satisfy human wants. The scarcity of means in relation to wants brings forth before us the problem. The problem is how much resources should be used in satisfying different wants.
In this way, one has to choose certain wants from among unlimited wants. These wants are to be satisfied by his limited resources. This gives rise to the problem of how to use scarce resources to attain maximum satisfaction on the part of a consumer.
Similarly, a producer must try to maximise his profit from the limited resources at his disposal. In economics, this very problem of choice making is called economic problem.
According to Prof. Eric Roll, “The economic problem is essentially a problem arising from the necessity of choice, choice of the manner in which limited resources with the alternative uses are disposed of. It is the problem of husbandry of resources”.
In short, the problem of choice making or decision making arising out of limited means and unlimited wants is called economic problem. Scarcity lies at the root of all economic problems faced by the economy. Economy refers to a system of all institutions, organizations and individuals, which are interrelated and independent and are concerned with the livelihood of man.
According to J.R. Hicks, an economy or economic system may be described as “the co-operation of producers and workers to make goods and services to satisfy the wants of consumers’. A.L. Brown says, “An economy is a system by which people get a living and satisfy their wants.”
Causes of Economic problems
(i) Unlimited wants:
Human wants are unlimited. There is no end to human wants. When one want is satisfied, another takes its place. The never-ending cycle of wants goes on and on. Again, one cannot satisfy a particular want for all times to come. It recurs. Human wants are countless and diverse. With the development of education, knowledge, scientific advancement and economic growth, wants go on increasing. ‘Man is a bundle of desires.’
(ii) Different priorities:
All wants are not equally important or urgent. Some wants are more important and urgent and some are less. So a man can satisfy his different wants in order of his priorities.
(iii) Limited means:
While human wants are unlimited, resources to satisfy them are limited. This problem is found both in case of an individual and society at large. Had the means been unlimited to satisfy unlimited wants, there would have been no economic problem. But the reality to life is different. The existing supply of resources in inadequate in relation to the known desires of individuals. Thus, resources are scarce in relation to their needs. This is the basic feature of every economy of the world. The question of choice between wants becomes inevitable and unavoidable on account of scarcity of resources. Hence, certain wants will go unsatisfied.
(iv) Resources have alternative uses:
Means are not only limited but are also capable of being alternatively used. For example, a plot of land may be put under cotton cultivation or sugar cane or jute cultivation. The farmer will have to choose between numerous alternatives.
To satisfy one want we shall have to give up another. In this way, economic problems crop up. This gives rise to the problem of choice. The economic problem is, therefore, the problem of choice making. The choice between alternatives is the very foundation of economic system. Multiplicity of wants and scarcity of means are the two foundation stones of Economics. The problem of choice is the problem of Economics.
Economics is a science of choice when faced with unlimited wants and limited men’s. Economics is primarily concerned with the problem of economization.
Economizing, means putting the limited resources to the best possible use so as to derive maximum satisfaction in case of a consumer and maximum profit in case of a producer.
Watson defines economic problem as “how to get more and how to make the best use of what is available is the economic problem of every family, every business firm and every unit of government”.
On the basis of scarcity and choice Prof Lionel Robbins of London School of Economics defines economics “as a science which studies human behaviour as a relationship between ends and scarce means which have alternative uses.” He has given this definition in his book. “The Nature and Significance of Economic Science” (1932). Stonier and Hague, Stigler, Watson, Ferguson and Scitovsky have also defined Economics on the basis of scarcity.