The economic problem arises as a result of scarcity. Scarcity refers to the condition where unlimited wants and needs exceed the limited resources available to fulfill them. In other words, resources such as land, labor, capital, and entrepreneurship are limited in comparison to the infinite desires and needs of individuals and society.
Because of scarcity, individuals, businesses, and societies must make choices about how to allocate their limited resources efficiently. This leads to the economic problem, which involves determining what to produce, how to produce it, and for whom to produce it.