To begin, needs are essential to our survival such as food, shelter, health and education. Wants on the other hand, are the goods and services that make human lives easier, for instance, a car, a new gadget or even travelling. Individuals wants will differ based on personal preferences and the ability to purchase goods and services (income). The resources used to produce these goods and services are limited. Resources are called the factors of production, which include labour, capital, enterprise and land.
First, labour is the effort of people producing goods and services. Every person has different skills and experiences, this is known as human capital. When people have more human capital, they are likely to be more valuable. Second, capital is the investment in goods that are used to produce other goods in the future, for example, machinery, buildings and new technology. Third, enterprise is producing an idea and starting a new business to produce the goods and services. For example, Steve Jobs was an entrepreneur who produced the Apple iPhone. Finally, land is the natural resources available for production. For example, some countries have a large amount of natural resources such as oil and gas which they could specialise in.
A problem is created when resources are scarce and we have unlimited wants. When there is scarcity, in which the available resources are not enough to fulfill the human wants and needs, producers and consumers have to make choices between other alternatives based on the given resources. All economic decisions involve making choices. Individuals must choose