What is the problem?
Economics is the study of how to allocate or use resources such as money, land, etc. most efficiently. The world is such that everything is scarce. Money is limited, food is limited, labor is limited, steel and plastic are limited. Everything is limited and thus to do something we need to make sure that resources are allocated in the best and the most efficient way.
One problem here is that of opportunity cost. It is the "next best alternative that has been forgone" while undertaking something. An example is that a person eats ice cream, the next best alternative was eating a burger, which was not undertaken, thus the cost of eating an ice cream is eating burger. This cost exists because the person has a limited amount of money and only one thing can be bought. Companies and governments have to look at opportunity costs as well as time and money when making decisions.
Scare resources?? What are the scarce resources then?? In economics they are:
- Entrepreneur (defined in economics as anyone who takes a risk)
- Land (your land on which you built a plant, office or mine etc.)
- Labour (employees, skilled and unskilled labour)
- Capital (this includes money, machinery etc.)
Increasingly another factor is added i.e.
- Technology or knowledge (this helps a firm to improve productivity, efficiency, quality, etc. and includes machinery, processes, training etc.)