Introduction to Economics - Study Material



(In this conversation Mother is wishing her son (Raju) on his birthday and giving him Rs.1000 as the birthday gift. Mother is suggesting many options to spend money and trying to teach him, that he has limited money and he can only go for single or combination of options but he cannot go for all options as money with Raju is limited.)

Mother: Many Happy return of the day, Son. May God bless you.

Raju: Thanks Mummy for wishing me on my birthday. But first tell me, where is my birthday gift?

Mother: Take this 1000 rupees note as birthday gift.

Raju: WOW! Thank you mummy

Mother: Okay Raju, Tell me where you are going to spend this 1000 rupees.

Raju: I don’t know right now.

Mother: You have many options to spend, like:

  1. You can give party to your friends.
  2. You can buy clothes for yourself for Rs.1000.
  3. You can go for movie with your friends.
  4. You can buy books and stationery for you and save some money.

Raju: Mummy you have given me lot of choices. Now I am confused for which must go. Mummy, Can I opt combination of options?

Mother: Yes you can go for more than on option but you cannot go for all.

Raju: Why?

Mother: Because you have limited amount with you i.e. Rs. 1000 Only.

Because If you go for more than one option it cost much more than what you have.

Raju: I think it is my bad luck

Mother: No Raju, It is not your bad luck because similar problem (dilemma) is faced by every individual, every society and even every country in this world.

Raju: What is the reason behind this shortage of money or other resources?

Mother: Raju, Resources are the inputs used in the production of the things we desire. Therefore, the goods produced by these resources are also scarce

Raju: I want to solve this problem of scarcity. Please tell what I have to do?

Mother: Dear Raju, This problem of scarcity is universal and unavoidable. The problem can never be solved but can only be managed.

Raju: So what should we do to manage the problem of scarcity?

Mother: We should make efficient use of resources in order to satisfy unlimited wants and desires.



  • Scarcity is the most basic economic problem (or limited resources), that every country (Economy) faces.
  • Economy runs into scarcity as resources are scarce to satisfy unlimited wants and desires of the society.
  • Problem of scarcity can never be solved or avoided, it can only be managed.


  • Resources of Alternative uses of scarce resources can be understood with the help of given example.
  • g. Government has to decide where it can use the tax revenue collected, whether for defense goods or for the construction of shelters for homeless people of the country.
  • In a similar manner a farmer having a single piece of land has to decide whether to produce rice or wheat.


Economics is the study of optimum utilization of scarce resources with the objective to satisfy unlimited wants and desires.


  • Economic Problem is the problem of allocation and optimum utilization of scarce resources
  • An economic problem arises because
    • Resources are short in supply in relation to needs and wants of the society.
    • Resources have alternative uses


1. Which of the following is not concerned with the problem of choice?
  1. Excessive income
  2. Alternative use
  3. Unlimited Wants
  4. Limited(scarce) resources

View answer

Answer: 1

2. Principle characteristics of resources are:
  1. They are limited
  2. They have alternative uses
  3. Both (a) and (b)
  4. none of these

View answer

Answer: 3

3. The resources to satisfy human wants are:
  1. Limited
  2. Unlimited
  3. Available at zero price
  4. None of these

View answer

Answer: 1

4. In which of the following situations, does scarcity arise?
  1. Supply> Demand
  2. Supply< Demand
  3. Supply= Demand
  4. None of these

View answer

Answer: 2

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