A need is a good or service essential for living.

A want is a good or service which people would like to have, but which is not essential for living. People’s wants are unlimited.

The economic problem – there exist unlimited wants but limited resources to produce the goods and services to satisfy those wants. This creates scarcity.

The economic problem – the real cause

The real cause of the shortage or scarcity of goods and services is that there are

not enough factors of production to make all of the goods and services that the

population needs and wants.

There are four factors of production:

» Land – this term is used to cover all of the natural resources provided by

nature and includes fields and forests, oil, gas, metals and other mineral

resources.

» Labour – this is the number of people available to make products.

» Capital – this is the finance, machinery and equipment needed for the

manufacture of goods.

» Enterprise – this is the skill and risk-taking ability of the person who brings

the other resources or factors of production together to produce a good

or service, for example, the owner of a business. These people are called

entrepreneurs.

In any one country, and in the world as a whole, these factors of production are

limited in supply. As there is never enough land, labour, capital or enterprise to

produce all of the needs and unlimited wants of a whole population, there is an

economic problem of scarcity.