What is the Economic Problem?

My name is Simon Halliday.

I'm an associate professor in the School of Economics at the University of Bristol.

We are going to be talking today about factors of production and economic systems

in terms of what we're going to cover broadly in this video,

we are going to cover a range of topics we're

going to start off with talking about the economic problem.

What is the economic problem? Why do we need to understand it?

We're going to talk about different kinds of goods and also compare goods to Bath's.

We're going to talk about the factors of production.

As I've already said and also organisation or enterprise.

We'll talk a little bit about decision making economics

and what it means for someone to be rational.

So let's start talking about the economic problem.

So what is the economic problem?

Before I answer the question that I posed to you,

I want you to consider the following questions for yourself.

What once

do you have

what I mean by that?

Well, if you could list all the things you want in life for yourself, your friends,

your family and so on, what would those once be?

Take a moment and think to yourself. Try to actually list some of them.

Do I have a limit

to those ones? What will stop

when I done with everything that I want right now?

And then you can think to yourself, OK, at what point would that be?

Now, here's the thing.

If you don't stop,

if you think there are many, many,

many things that I want and I don't know where they

will end all you probably like most humans on the planet,

many of your wants are limitless.

Okay,

now I have another question for you before I answer what the economic problem is.

So here's the thing. How do you go about getting the things that you want?

Okay, think about that. I want some stuff. How do I get the things that I want?

Well, here's the thing. If I want stuff, I typically have to pay for it.

We mostly live in market economies. In market economies, things have prices.

We pay for the goods that we want.

That means if I want one thing and I've paid for it,

that means I can't pay for something else.

So here is the crucial thing.

Unless For some reason,

I had an unlimited amount of money and unlimited time with my unlimited once.

Well, that would be a very strange world to live in

for all of us.

What's most likely going to be the cases we have

unlimited Once we have limited time and we have limited money

and that's the economic problem.

I can't satisfy all of my unlimited once,

given the things that I'm restricted by my limited time and my limited money.

And so, in a world of unlimited once where there was once incur an opportunity cost,

then we confront the economic problem.

We are in the world of the economic problem.

I have to pay a price to get one thing,

which means I can't use that money to buy something else.

Each thing that I would purchase has an

opportunity cost because of those opportunity costs.

That means that I can't satisfy all of the unlimited once that I have

okay,

so what we now want to think about is what the economic problem isn't and

I want to make this point because sometimes things get a little bit confused.

So to understand the economic problem,

we need to understand the word scarce and in economics,

we have to think about what that means.

So in economics, the word scarce means that something has an opportunity cost.

Okay, so think about that again.

When something is scarce, that means it has an opportunity cost.

So to be reminded of what an opportunity cost is an opportunity cost is when

I have to give up something in order to get more of something else.

So, for example, here's here's something what I have an opportunity cost of.

I am here recording this video for you

with recording this video for you. Well, I could be doing other things.

Maybe there's another job that could have paid me more,

so there's a high opportunity cost there.

But there are other things I could be doing to with my time.

I could be going for a walk on a beautiful beach or a hike outside,

or maybe watching a movie.

All of these things are the things that I have given up to be doing this instead,

that's an opportunity cost.

So,

um, an opportunity,

cost or things having opportunity costs means that they are

scarce when things are scarce and we have once.

Well, I have those ones. Those ones have opportunity costs.

That means we're in the world of the economic problem

now.

The reason I bring this up is because sometimes the economic problem

is phrased in terms of the word limited resources being limited.

Now that's along the right track.

But there are certain things that are

limited but that don't have opportunity costs.

So what do I mean? Here?

Imagine someone says to you, Although once are endless,

the resources to satisfy those ones are limited.

That is true. But here's an interesting example. Think about your want for oxygen.

I have a pretty unlimited one for oxygen.

At least while I'm alive, I suspect you do, too. And here's the thing.

The amount of oxygen on planet Earth is limited, right?

There's only a certain amount of it. Yes, it's getting produced.

Stuff is happening and the chemistry is going on and oxen is being produced.

But within the atmosphere,

we can think maybe there's a certain amount of oxygen

that we that that actually exists on the planet.

Okay, then we think to ourselves, all right.

But does my consuming some oxygen have an opportunity cost.

It doesn't really so even though it's limited,

it doesn't have an opportunity cost as far as I'm concerned, right?

So in terms of my consumption of this good that I want oxygen Well,

even though it's limited, it doesn't have an opportunity cost.

And so I don't confront the economic problem.

But then you could say to me, Hahaha, Simon!

But I know there are places where oxygen would

have an opportunity cost and you're totally right.

Imagine that for some reason you are on a submarine on a space station.

What is true in those places? Oxygen is limited

and its production has an opportunity cost right.

You're having to give up water and go through electrolysis in order

to produce more oxygen for people to live on that oxygen.

And that's what happens on space stations and on submarines.

In those cases with oxygen, you're facing the economic problem.

So many questions result from this problem of the economic problem,

and we're going to talk about them in sequence.

Firstly, what is a want we spoke about unlimited once? What do you mean by that?

We're also going to talk about what they need is because people often separate.

The idea of what they need is in order to survive versus

what is something that you want that you want to pursue.

We're also going to talk about economic goods and free goods.

We'll also talk about a good and a bad,

and that's the direction in which we're going to go next.

So before we proceed to the next section, I want to do a knowledge check with you. So

I'd like you to go back to the questions that we started

this video with the section with about the unlimited ones that you had

and those listings of those ones that you had.

Now what I want you to think about is we spoke about opportunity,

costs and opportunity costs,

being the key ingredient for scarcity and therefore the economic problem.

And I want you to make sure that you can

articulate why those once you have have opportunity costs.

So please make sure you can articulate that and explain this idea

of an opportunity cost before we go to the next section.