Economics- Question & Answer

“The root of the economic problem is the scarcity of resources while our wants are infinite”. Elaborate the given statement explaining the three types of economic problems faced by an economy in achieving in production and distribution.

The Scarcity of Resources and Infinite Wants: Unraveling Economic Problems

The statement “The root of the economic problem is the scarcity of resources while our wants are infinite” encapsulates a fundamental challenge faced by all economies. In this discourse, we will delve into the essence of this statement and elucidate the three types of economic problems that emerge from the interplay of limited resources and boundless human wants, impacting the production and distribution processes within an economy.

I. Scarcity of Resources:

Scarcity is a pervasive condition arising from the inherent limitations of resources compared to the insatiable human wants. Resources, encompassing land, labor, capital, and entrepreneurship, are finite, creating a perpetual tension between what is available and what is desired. The scarcity phenomenon necessitates choices, as every decision made involves allocating scarce resources among competing uses.

II. Infinite Human Wants:

Human wants are virtually limitless and exhibit a tendency to expand as individuals, societies, and economies progress. This infinite nature of wants stems from various factors, including societal trends, technological advancements, and individual aspirations. While addressing basic needs is essential, the constant evolution of desires and aspirations contributes to the perpetual state of scarcity.

III. Three Types of Economic Problems:

The scarcity of resources and infinite human wants gives rise to three distinct economic problems that societies grapple with in the pursuit of efficient production and equitable distribution:

What to Produce:

Resource Allocation: The first economic problem revolves around the allocation of scarce resources to produce a combination of goods and services. This necessitates decisions on the types and quantities of products to manufacture or services to provide.
Opportunity Cost: The concept of opportunity cost is intrinsic to this problem. When resources are employed for one purpose, the potential benefits foregone in the next best alternative represent the opportunity cost. Societies must weigh the benefits and costs of producing different goods and services.
How to Produce:

Production Methods: The second economic problem pertains to determining the most efficient methods of production. This involves choices regarding the techniques, technologies, and processes used in manufacturing goods and delivering services.
Cost Efficiency: Decisions on how to produce necessitate considering cost efficiency and resource optimization. Factors such as labor-intensive versus capital-intensive methods, technological choices, and environmental considerations come into play.
For Whom to Produce:

Distribution of Goods and Services: The third economic problem revolves around the distribution of the produced goods and services among the members of society. This entails decisions on income distribution, wealth distribution, and ensuring access to essential goods and services.
Equity and Fairness: Societies must grapple with questions of equity and fairness in resource distribution. Should income and wealth be distributed based on need, contribution, or some other criterion? Addressing this economic problem involves designing systems that aim for a just distribution of the fruits of production.
IV. Economic Systems and Solutions:

Market Economy:

In a market economy, the allocation of resources is primarily determined by market forces of supply and demand. The “what to produce” question is answered by consumer preferences, while the “how to produce” question is guided by cost considerations. The “for whom to produce” question is addressed through the purchasing power of consumers.
Command Economy:

In a command or planned economy, the central authority (usually the government) makes decisions regarding resource allocation, production methods, and distribution. The state determines what, how, and for whom to produce based on central planning.
Mixed Economy:

Many modern economies adopt a mixed economic system, incorporating elements of both market and command economies. The market mechanism guides resource allocation in certain sectors, while the government intervenes in others to address issues of public interest and social welfare.
V. Importance of Efficient Resource Allocation:

Productivity and Growth:

Efficient resource allocation enhances productivity and contributes to economic growth. When resources are allocated to their most productive uses, the overall output of goods and services increases, fostering economic development.
Reducing Waste and Scarcity:

Proper resource allocation helps minimize waste and reduces the intensity of scarcity. By avoiding misallocation, societies can optimize the utility derived from limited resources and alleviate scarcity-related challenges.
Innovation and Technological Advancements:

Efficient allocation of resources promotes innovation and technological advancements. When resources are directed toward research and development, education, and infrastructure, societies can foster progress and adapt to changing needs.
Social Welfare and Equity:

Societies that address the economic problem of resource distribution with a focus on social welfare and equity are better positioned to mitigate social inequalities and enhance overall well-being.
VI. Conclusion:

In conclusion, the economic problem, rooted in the scarcity of resources and infinite human wants, manifests in the form of three fundamental questions: what to produce, how to produce, and for whom to produce. The interplay of these questions shapes the economic landscape of societies and influences the choices made in resource allocation, production methods, and distribution mechanisms.

Efficient solutions to these economic problems are pivotal for societal well-being, economic growth, and the pursuit of equitable outcomes. The choice of economic systems, whether market-driven, centrally planned, or a mix of both, reflects a society’s approach to resolving the inherent challenges posed by scarcity and infinite wants. As societies navigate these economic problems, the goal is to strike a balance that maximizes societal welfare, fosters innovation, and ensures a fair and just distribution of the benefits of economic activity.

Complete the hypothetical table – compute and show steps on Average Product and Marginal product.  (5 Marks)

QuantityTotal ProductAverage ProductMarginal product

To provide a comprehensive explanation of how to complete a hypothetical table involving Average Product (AP) and Marginal Product (MP), let’s start by defining these terms and then proceed with a step-by-step calculation.


  • Average Product (AP): It is the output per unit of a particular input. In the context of this table, we’ll consider the Average Product of Labor (APL), which is the total product divided by the quantity of labor.
  • APL=Quantity of Labor / Total Product
  • Marginal Product (MP): It is the additional output resulting from one more unit of input. In this case, we’ll look at the Marginal Product of Labor (MPL), which is the change in total product due to a one-unit change in the quantity of labor.
  • MPLQuantityofLaborΔTotalProduct

Hypothetical Table:

Let’s consider a table that represents the relationship between the quantity of labor and the total product:

Step-by-Step Calculation:

  1. Calculate Average Product of Labor (APL):


  1. Calculate Marginal Product of Labor (MPL):

MPLQuantity of Labor/ ΔTotal Product


  • Average Product (APL): APL represents the average output per unit of labor. Initially, as the quantity of labor increases, APL rises, indicating increasing efficiency. However, after a certain point, APL starts to decline, suggesting diminishing returns to labor.
  • Marginal Product (MPL): MPL represents the additional output gained by employing one more unit of labor. Initially, MPL is rising, signifying increasing marginal returns. However, after a certain point, MPL starts to decline, indicating diminishing marginal returns.

Graphical Representation:

It’s often helpful to visualize these relationships graphically. Plotting Total Product, Average Product, and Marginal Product against the quantity of labor on a graph can provide a clearer understanding of the production function and the impact of each additional unit of labor.


In summary, completing a table involving Average Product and Marginal Product requires careful calculations based on the given total product and quantity of labor data. These metrics are crucial for understanding the efficiency of production processes and making informed decisions about resource

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