Resources and human needs
The entire economic problem start with satisfying human behaviors of needs and want by a limited amount of resources with capable of using for multiple inputs.
A resource can be any good use in the production of other goods. It’s also known as factor of production.
Economists usually divide resources into three types as land, labor and capital.In a broad description,
§ Land includes both land itself and natural resources such as metal oil coal and anything taken from the earth.
§ Labor include not only working hours but also knowledge
§ Capital is material or physical resources used to facilitate production such as building, machine paper and desk.
In economics a good is scarce if not enough of its available to put to every conceivable use without sacrificing something else.
If any good is available more than any ones needs and wants, or more goods can be consume without sacrificing anything else that good is abundant. As an example air is abundant because we have more than enough air to go around, no one will have to sacrifice anything to obtain air to breath.
Anyone can own any resource in any quantity but that doesn’t mean that people can satisfy all their needs and wants by them. So to overcome this problem the multipurpose scare resources are exchange between various inputs and satisfying overall needs and wants.
The method of exchanging resources have come to this day by passing simple self sufficient household system and exchanging of goods between specialized household purchasers. And later with the use of an exchange medium, resources are exchange more easily within the units. This made the path to use money as an exchange medium. This the main method which uses up to this day.
As example middle-eastern countries has a problem of finding skilled labor. This is solving by imported unemployed labor from other south Asian countries.
In the other hand some of the south Asian countries imports crude oil from middle-eastern countries
In this example we can clearly identify that both countries has satisfy their needs and wants (one with labor and other with land) by the method of exchanging.
In both cases money has being used has the medium of exchange.
For selling labor south Asian countries get paid by wages and where as for selling oil middle-eastern countries get money payments. Both countries get an income.
Income and the purchasing power
An income becomes an expense to satisfy human needs. in a world of exchanging everything with a medium; everything is determined by a price.
High income owner can consume luxury items or even can porches larger amounts of goods and services to satisfy their needs.
Each household has at any moment in time limited buying power. Most of us are able to buy a small fraction of goods and services we would like to enjoy.
How these determine made?
How does the household decide any product available will be bought?
The basic assumption of economic theory is that each household will tend to allocate its expenditure among goods and services available to it in such way to maximize the satisfaction derivable from its limited budget. Households will buy the combination of products that provides with highest possible level of satisfaction if it had more money to spend it could enjoy even greater satisfaction by within limited buying power.
Production at lowest possible cost
In the first place firms should be producing its output at the lowest possible cost to the society, given the available technology. That is each product should be produce at the lowest possible sacrifice of the other products, or as economist often phrases it, the lowest possible opportunity cost .if such not the case society is not maximizing its satisfactions.
