Fundamental economic problem - how bestto make decisions about the allocation of scare resourcesamong competing uses to improve economic welfare.
Scarcity - The fact that there are limited resources and people have unlimited wants - people would like to consume more than economy can produce with its limited resources.
Means that people have to make choices as people face budget or time constraints. This means there are opportunity costs (the cost of giving up the next best alternative) that arise, as people cannot have everything and it is assumed that people will make the choice to maximise the economic welfare, due to behaving rationally.
Firms also have to make choices on how/what to produce. E.g a clothes designer choosing to produce more shirts would have to produce less dresses as they only have a limited amount of material.
Teenagers also have to decide to leave school and get a job or go to university. Defined as inter-temporal choice (choice over time) as it involves deciding between money now or in the future.
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