Economic problem arises as a result of

1. Analyze the question The question asks for the root cause of the economic problem, not a consequence of it.

2. Explain the concept The basic economic problem is how to satisfy unlimited human wants using limited (scarce) resources. Because resources such as land, labour, capital and time are limited, people, firms and governments cannot have everything they want.

This sets off a chain of events:

• Scarcity: resources are limited relative to wants. This is the cause.
• Choice: because of scarcity, we must choose what to produce and what to give up.
• Scale of preference: a ranked list of wants, which helps us choose.
• Opportunity cost: the next best alternative given up once a choice is made. This is a consequence.

3. Step-by-step solution

• A. Choice: this is a result of scarcity, not the cause.
• B. Money cost: this is just the price paid, and has nothing to do with why the problem exists.
• C. Opportunity cost: this is the cost of a choice, and it arises after scarcity forces a choice.
• D. Scarcity: if resources were unlimited, there would be no need to choose, no sacrifice and no economic problem. Scarcity is the root cause.
• E. Scale of preference: this is a tool for managing the problem, not its source.

4. Answer The correct option is D. scarcity.

5. Exam tip Remember the chain: Scarcity → Choice → Scale of preference → Opportunity cost. When a question asks what the economic problem arises from, think of the first link in the chain, which is scarcity.