The basic economic problem is the issue of scarcity and how best to produce and distribute scarce resources. Scarcity means that there is a finite supply of goods and raw materials, while unlimited wants mean that there is no end to the quantity of goods and services people would like to consume. Because of scarcity, economics is concerned with what to produce, how to produce, and for whom to produce. The economic problem can be divided into three different parts:

• Problem of allocation of resources: This refers to the challenge of deciding what kinds and quantities of goods shall be produced, and how much and which of alternative goods and services shall be produced.

• Problem of full employment of resources: This refers to the challenge of ensuring that available resources are fully used.

• Problem of economic growth: This refers to the challenge of achieving economic growth and development.

The economic problem can be illustrated with the concept of opportunity cost, which is the next best alternative foregone. For example, if a consumer with a limited income of £20,000 per year spends £3,000 on a new car, then that is £3,000 they cannot spend on food and drink. The solutions to the economic problem come from answering the three basic economic questions: what to produce, how to produce, and for whom to produce.