Examples of the basic economic problem in the context of workers

The Basic Economic Problem – The Nature of the Problem for Workers

1. What is the basic economic problem?

The basic economic problem arises because resources are scarce while human wants are unlimited. In the labour market this means that the supply of workers (and their skills) is limited compared with the demand for work.

2. Why does the problem appear for workers?

• Scarcity of labour: The total number of people who are able and willing to work at any given time is finite.
• Limited skills and qualifications: Not all workers possess the same abilities; some occupations require specialised training.
• Time constraint: Individuals have only a limited amount of time to allocate between work, education, leisure and other activities.
• Geographical constraints: Workers may be located far from where jobs are available, increasing commuting costs or causing migration.

3. Examples of the basic economic problem in the context of workers

3.1 Unemployment

When the quantity of labour supplied exceeds the quantity demanded at the prevailing wage, some workers remain unemployed.

3.2 Skill mismatch

Employers may need workers with specific skills, but the available workforce may lack those qualifications. This creates a shortage of skilled labour and a surplus of unskilled labour.

3.3 Wage determination

Because labour is scarce, wages must be set at a level that balances the limited supply of workers with the demand from firms. The equilibrium wage \$w^*\$ satisfies:

\$ QD^L(w) = QS^L(w) \$

where \$QD^L\$ is the quantity of labour demanded and \$QS^L\$ is the quantity of labour supplied.

3.4 Opportunity cost of work

When a person chooses to work, the opportunity cost is the value of the next best alternative foregone, such as leisure or further education. This can be expressed as:

\$ \text{Opportunity Cost} = \text{Value of Leisure or Study} - \text{Wage Earned} \$

3.5 Allocation of labour across sectors

Resources (workers) must be allocated between agriculture, manufacturing and services. Because the total labour pool is limited, a decision to increase workers in one sector reduces the number available for others.

4. Comparative table of choices faced by workers

5. Suggested diagram

6. Summary

The basic economic problem for workers is the need to allocate scarce labour resources among competing uses. This leads to unemployment, wage determination, skill mismatches and trade‑offs between work, education and leisure. Understanding these examples helps students grasp how scarcity shapes economic decisions at both the individual and societal level.