Every society is filled with individuals who have numerous needs and wants, ranging from basic necessities like food, clothing, and shelter, to other services such as education, healthcare, and transportation. However, initially, no individual possesses all the resources or skills necessary to fulfil these needs. Resources such as land, labour, and skills are finite or limited.

Individuals or families utilise what resources and skills they possess to produce certain goods or services. They then use a portion of their produce for personal consumption and trade the remainder for other goods or services they need but don’t produce themselves. For instance, a farmer can grow corn and trade some of it for clothing, while a weaver can create cloth and trade it for food.

Some individuals, like teachers or labourers, provide services and earn money, which they then use to purchase the goods and services they need.

Since resources are limited, individuals and families are faced with making choices between different goods and services. They encounter trade-offs, for instance, deciding between a bigger house or more land, or between better education for their children or more luxuries.

On a broader scale, the collective society also needs to allocate its resources efficiently to produce the goods and services its populace needs and wants. The total production of certain goods, like corn, should match the total demand within the society. If there’s a mismatch between demand and production, resources may need to be reallocated to produce more of what’s in high demand.

Two fundamental economic issues arise within this framework:

1.Allocation: This refers to how the scarce resources of the society are assigned to produce a mix of goods and services that align with the desires of its people.

2.Distribution: This refers to how the produced goods and services are shared among individuals in the society.