Course: Introduction to Economics First Year LMD - common core Prof. Mecerhed Bilel / Prof.

Ait Embarek Samia

Lesson 02: The Economic Problem economic resources and needs, that is, the
scarcity of resources relative to needs.
1-The Economic Problem
The economic problem is the fundamental Economic problem : Faced with unlimited
challenge facing all societies, which is how to
needs, there are scarce and limited
satisfy unlimited wants and needs with
limited economic resources. resources.
Economics is the study of how limited
2- the characteristics of the economic
economic resources are allocated to satisfy
problem
unlimited human needs and wants. This The economic problem requires the
definition highlights two important facts: organization of the distribution of limited
 Human needs and wants are multiple and resources on multiple needs, that is, the
unlimited. problem of choice and differentiation
 The economic resources available to satisfy between needs according to the degree of
human wants are limited. urgency, as not all our needs are of the same
These two facts are the basis of the degree of importance, and therefore we
economic problem. Without them, the study should decide which needs to satisfy and
of economics would not be of great which to sacrify.
importance.
The economic problem is the lack of
proportionality, or contradiction, between
 Course: Introduction to Economics First Year LMD - common core Prof. Mecerhed Bilel / Prof. Ait Embarek Samia

The following are the main characteristics We can add others characteristics :
of the economic problem:
- Sacrifice: The process of choice requires
- Scarcity: This is one of the most important sacrifice. If we choose a certain need, we
characteristics, and it relates to relative sacrifice other needs in order to satisfy this
scarcity, not absolute scarcity. Resources are need.
available in the universe, but they are
considered scarce for the many and - Opportunity cost: Every decision of choice
renewable human needs. Therefore, the latest leads to an opportunity cost. Opportunity cost
scientific and technological methods must be is defined as the sacrifice of certain goods and
used to achieve the maximum possible services in order to produce other goods and
satisfaction of needs at the lowest cost. services. In other words, it is those benefits
that could have been obtained or were
- Choice: Since economic resources are not exploited for other alternatives.
enough to meet all human needs, humans
must choose to satisfy the important needs
and then the least important. This means that
needs must be ranked according to their
importance and priority.
 Course: Introduction to Economics First Year LMD - common core Prof. Mecerhed Bilel / Prof. Ait Embarek Samia

3- determinants of the economic problem: 4 - needs

determinants of the economic  Needs and wants (desires):
problem

Economic needs : are Economic resources:

 Needs are a feeling of deprivation that
essential goods and also known as factors compels an individual to do something to
services that people of production, are the eliminate this feeling and satisfy his need.
require for survival inputs used to produce Needs differ from wants.
and well-being. They goods and services.
arise from the limited Economic resources  Wants (desires) are an individual's
are characterized by desire to have something, but they are not
availability of
scarcity, flexibility of necessary for his survival or his life.
resources and the use, substitutability,
effort required to The difference between needs and wants can
and variability in
produce them. Their location and age. be summarized in the following points:
scarcity contributes to Scarcity means that - Needs are necessary for life, while wants are
the economic economic resources not necessary.
are limited in supply - Needs are relatively fixed, while wants are
problem, as it
and must be allocated variable.
necessitates a careful carefully. - Needs are measurable, while wants are not
allocation of
measurable.
resources to ensure
that everyone's basic
needs are met.
 Course: Introduction to Economics First Year LMD - common core Prof. Mecerhed Bilel / Prof. Ait Embarek Samia

 characteristics of needs :  types of needs :

 Basic needs and complementary needs:

 Non-Quantifiability: Needs cannot be Basic needs are the ones upon which an
precisely measured in quantitative units, but individual's life depends, such as food, while
they can be compared. complementary needs improve an
individual's life and contribute to its
 Relativity: Needs differ from one enrichment.
individual to another and can vary for the  Individual needs and collective needs:

same person over time and across different Individual needs are related to an
places. individual's personality, and they can be met
by the individual alone. Collective needs are
 Periodicity: Some needs are periodic and related to the existence of a community and
reoccur after being satisfied. cannot be satisfied except collectively, such
as the need for security.
Substitutability: Needs can be substituted  Material needs and non-material needs:

by other needs, either fully or partially, based Material needs require tangible resources
on individual preferences. and means to satisfy them, while non-
material needs do not depend on material
 Diversity and Growth: Human needs are resources but rather on services, like
diverse and continually growing. People do education, for example.
not have just one need but many.
 Course: Introduction to Economics First Year LMD - common core Prof. Mecerhed Bilel / Prof. Ait Embarek Samia

These needs are satisfied through goods other hand, are goods used to satisfy human
and services that fulfill them and are needs directly or by using them in the
divided into: production of goods and services used to
 Free Goods and Economic Goods: Free satisfy human needs.
goods are those that exist in nature in  Complementary Goods and Substitute

quantities exceeding the need for them, Goods: Complementary goods are goods
while economic goods are those that do not that must be used together to satisfy the
exist in nature in sufficient quantities to same need, like Coffee and sugar.
satisfy the need for them, and therefore, Substitute goods are goods that can be used
humans must make an effort to obtain them, interchangeably to satisfy the same need,
and there must be a cost associated with and the degree of substitutability depends on
obtaining them. how easily one good can be substituted for
 Consumer Goods and Producer Goods: another in satisfying the need like Coffee
Consumer goods are goods used directly and tea.
to satisfy human needs. They can be  Necessary Goods and Luxury Goods:

durable goods (goods that provide utility Necessary goods are those that satisfy
over an extended period of time), non- urgent needs for individuals or society and
durable goods (goods used to satisfy a cannot be easily dispensed with. Luxury
single human need), and intermediate goods are those that satisfy less urgent
goods (goods used in the production of new needs for individuals or society, and
products, fully included in the final cost of consumers only purchase them at a relatively
the commodity). Producer goods, on the
 Course: Introduction to Economics First Year LMD - common core Prof. Mecerhed Bilel / Prof. Ait Embarek Samia

high income level after they have satisfied The value of resources is determined by
most or all of their needs. their actual market price, reflecting their
importance in economic transactions.
5-Resources:  Use Value: The ability of a good to directly

Resources, in general terms, are the sources, satisfy human needs or the utility it provides.
means, or wealth that have value and can be It depends on the specific characteristics of
used. They aim to satisfy human needs. the good and varies among individuals.
Economic resources exist but may be limited  Exchange Value: This refers to the ability

due to underused, mismanagement, or of a good to be exchanged for something else.

population growth, leading to relative It depends on the good's social utility,
scarcity. meaning its usefulness to others. Exchange
value can only exist when there are multiple
 Characteristics of resources ; individuals and markets for the exchange of
 Utility: Resources must be useful, capable of goods, and it also depends on relative
satisfying human needs directly or indirectly. scarcity.
 Scarcity: Economic resources must be
relatively scarce, meaning their availability is  Typs of resources:
insufficient to satisfy all human needs for * Free resources: They are abundant in
them. nature and sufficient to meet human needs,
 Non-Specificity: Resources should not be and we do not pay a price for obtaining them
specialized, meaning they can be used to (sun, air).
satisfy various human needs.
 Course: Introduction to Economics First Year LMD - common core Prof. Mecerhed Bilel / Prof. Ait Embarek Samia

* Economic resources: They cost the Rent : is the return of land without human
human effort and time when using them to intervention.
produce and satisfyhis need, and without this c. Capital: It includes all machines,
cost it would not have become an economic equipment, and devices used in the
resource, and they are the factors of production process of a good or service. It is
production represented in: worth noting here that what is meant by
a. Labor: It includes the labor used in the capital in its economic sense differs from the
production process of a good or service, as accounting or financial concept, as capital in
well as the level of labor training or the its economic sense does not include any cash
amount of time spent in order to produce that amounts. The capital element receives intrest
good or service. The labor element receives a in return for its contribution to the production
wage and salary in return for its contribution process.
to the production process. d. Management (Entrepreneurship) : is the
b. Land: It includes existing natural ability to organize and manage the production
resources such as minerals, stones, and lands process. Entrepreneurs are compensated for
used in agriculture, industry, and housing, their entrepreneurship with a share of the
i.e., everything that belongs to the interior of profits.
the earth or what is on it from natural
resources. The element of land (for example,
the landowner) receives rent in return for its
contribution to the production process.
 Course: Introduction to Economics First Year LMD - common core Prof. Mecerhed Bilel / Prof. Ait Embarek Samia

6. Elements of the economic problem: production methods depends on factors

There are three questions that any economy such as the availability and relative prices of
in the world must answer, forming the production inputs, like labor and capital.
elements of the economic problem: Relative prices influence the producers'
 What goods and services are to be decisions to maximize profits and minimize
produced?: It is possible to distinguish costs, thereby achieving economic
between free goods and economic goods and efficiency.
choose different goods for consumption.  For whom are goods and services to be
Free goods are those that exist in nature in produced?: This addresses the distribution
quantities exceeding the need for them. As of economic output in society among the
for economic goods, they are not naturally owners of production’s factors. Different
available in quantities sufficient to satisfy groups receive compensation based on their
the demand for them. Therefore, humans contributions. Owners of capital receive
must exert effort to obtain them, and there interest, laborers receive wages or
must be a cost associated with obtaining salaries, landowners receive rent, and
them. organizers receive profit.
 How are goods and services to be
produced?: This question pertains to the
methods of production, including the
selection of production techniques and how
resources are allocated. The choice of
 Course: Introduction to Economics First Year LMD - common core Prof. Mecerhed Bilel / Prof. Ait Embarek Samia

These elements are essential in any Economic thinkers have made efforts to
economy and form the basis for making provide solutions to the economic problem,
efficient economic decisions. The way these and these solutions involve answering the
elements are addressed depends on the three questions encompassed by its elements.
economic system and government policies In this context, two solutions have been
in place. proposed for the economic problem by
different economic thinkers: the capitalist
The economic problem revolves around ideology and the socialist ideology. Before
the scarcity of resources in the face of discussing them, it is essential to understand
diverse and increasing human needs. This the concepts of each of these ideologies and
scarcity necessitates choices about what the economic system associated with them.
goods and services to produce, how to
produce them, and for whom they should be
produced. The nature of these choices varies
across different economic systems and is
influenced by the relative prices and
availability of resources in the market.