All societies face the economic problem, which is the problem of how to make the best use of limited, or scarce, resources. The economic problem exists because, although the needs and wants of people are endless, the resources available to satisfy needs and wants are limited.

Limited resources

Resources are limited in two essential ways:

1.      Limited in physical quantity, as in the case of land, which has a finite quantity.

2.      Limited in use, as in the case of labour and machinery, which can only be used for one purpose at any one time.