The problem of choice, like an individual, also applies to the society as a whole. Thus, for an economy, economic problem is the problem of resource allocation.
According to Milton Friedman, “An economic problem exists whenever scarce means are used to satisfy alternative ends.
If means are not scarce, there is no problem at all.” According to Oscar Lange, “Science of administration of scarce resources in human society.”
Causes of Economic Problem:
Prof. Lionel Robbins in his famous book, “An Essay on the Nature and Significance of Economic Science” (1932), has given the following reasons for the emergence of economic problem.
(i) Unlimited Wants:
Human wants are unlimited in numbers. There is no end of human wants; whenever one want is satisfied, automatically the other wants crop up and this goes on and on. There are several wants which are recurring in nature like, food, clothes, shoes, etc. Moreover, human wants are increasing day by day with the development of education, knowledge and civilisation.
(ii) Limited Resources:
In economics, scarcity means that commodities and resources to produce goods and services are less in relation to their demand. Goods and services that satisfy human wants are produced with the help of resources such as land, labour, capital and enterprise. These resources are scarce while wants are unlimited. Due to scarcity of these resources, an economy cannot produce all that goods and services as required by its citizens. Consequently, some wants remain unsatisfied.
(iii) Alternative Uses of Resources:
Means are not only limited but also have alternative uses. Hence, choice has to be made for different alternative uses. For example, electricity can be used for lighting lamps or for cooking food or for operating TV, Fridge, music system etc. Similarly, there are many resources which have got their alternative uses. This characteristic makes resources scarce. Thus, every economy has to choose better alternative uses of resources to which they can be put.