Strategy illustration Strategy theory

The basic economic problem and opportunity cost

The basic economic problem is that resources are scarce relative to the purposes to which they could be put. As a result choices have to be made about how to use resources. The basic economic problem is thus frequently referred to as 'scarcity and choice'. A resource is a means of support. A resource from the point of view of business studies can be regarded as any feature of our environment that helps to support our well-being.

There are two main types of resource:

1. Physical or natural resources - such as oil, climate, water, minerals, forests and fisheries.

2. Human resources - people and their various skills.

If we were to take stock of the world's existing bundle of resources we would find that there are severe limitations to its ability to meet our infinite wants.


Scarcity

Scarce resources can be broken down into four key ingredients: land, labour, capital and enterprise. Land includes all natural resources; labour includes all physical and mental effort; capital includes machinery and other items that go into further production; and enterprise is the art of combining the other three factors in the production process.

Scarcity can be seen as resulting from the lack of availability in resources, from people's insatiable wants, or from a combination of the two.

Most large multinationals have cut down the range of brands they produce in recent years. For example, BIC the producer of pens, lighters, and razors has consolidated around 150 lines from a much larger range. This is so that it doesn't spread its resources too thinly in competing in global markets.

Because resources are scarce and most of our wants are extensive, a choice has to be made about how to use scarce resources in the best way. This rule applies to organisations, society as a whole, and to individuals.


Supporting Documents

These downloads will help to put strategy theory into context using real world examples from real businesses.

Creating the right marketing mix
Motorola logo

Discover how Motorola employed strategy theory to prosper in the telecommunications industry by downloading our premium case study.

Balancing the marketing mix through creative and innovative strategies
Kellogg's logo

Find out how Kellogg's employed strategy theory to thrive in the manufacturing industry by downloading our premium case study.

Using sponsorship to increase brand awareness
Infiniti logo

Discover how Infiniti employed strategy theory to succeed in the automotive industry by downloading our premium case study.

Innovation in infant nutrition
Cow & Gate logo

Discover how Cow & Gate employed strategy theory to thrive in the food & drink industry by downloading our premium case study.

Planning effective marketing strategies for a target audience
adidas logo

Learn how adidas employed strategy theory to prosper in the sportswear industry by downloading our premium case study.