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The fundamental economic problem is the issue of scarcity but unlimited wants. Scarcity implies there is only a limited quantity of resources, e.g. finite fossil fuels. Because of scarcity, there is a constant opportunity cost - if you use resources to consume one good, you cannot consume another. Therefore, an underlying feature of economics is concerned with dealing how to allocate resources in society to make the most efficient and fair use of resources. The main issues are:

What to produce?

How to produce?

For whom to produce?

Examples of economic problems include

Micro economic problems
1. The problem of externalities The economic problem of pollution
One of the most frequent problems is that economic decisions can have external effects on other people not involved in the transaction. For example, if you produce power from coal, the pollution affects people all over the world (acid rain, global warming). This is a particular problem because we cannot rely on the free market to provide the most efficient outcome. If we create negative externalities, we don't take them into account when deciding how much to consume. This is why we can get overconsumption of driving a car into a city centre at peak hour. If everyone maximises their utility, it doesn't lead to the most efficient outcome - but gridlock and wasted resources.

Externalities, usually need some kind of government intervention. For example, taxes on negative externalities (e.g. sugar tax) or subsidies on positive externalities (e.g. free public education) even banning cars in city centres.

But, even the solution to market failure (e.g. taxes), creates its own potential problems, such as how much to tax? will there be tax evasion? The administration costs of collecting tax.
Environmental issues
Economics is traditionally concerned with utility maximisation - allowing individuals to aim at increasing their economic welfare. However, this can ignore long-term considerations of environmental sustainability. If we have over-consumption in this century, it could cause serious problems for future generations - e.g. global warming, loss of non-renewable resources. The difficulty is that the price mechanism doesn't take into account these future costs, and policies to reduce consumption may prove politically unpopular.

- How to deal with potential future environmental costs?
Monopoly
Monopoly was an economic problem that Adam Smith was concerned about in his influential book of economics "A Wealth of Nations." For various reasons firms can gain monopoly power - and therefore the ability to set high prices to consumers. Given a lack of alternatives, monopolies can make high profits at the expense of consumers, causing inequality within society. Monopoly power can also be seen through monopsony employers who pay lower wages to their workers.

How to deal with the problem of monopoly? - A government may seek to encourage competition, e.g. rail franchising, or price regulation to prevent excessive prices.
Inequality/poverty
This shows that 10% of the world population still live on below $1.90 a day - though the figure has reduced in past three decades.

Inequality is considered a problem because of normative opinions such as - it is an unfair distribution of resources. Also, you could argue there is a diminishing marginal utility of wealth. If all wealth is owned by a small percentage of the population, this reduces net welfare. Redistributing the money to the very poor would enable a greater net utility to society.

Five of the world's largest companies Apple, Microsoft, Alphabet, Cisco and Oracle, have a total of $504bn cash savings (2015) This is money unused, whilst people around the world have insufficient food.

Inequality is a problem. However, it is also a problem to know how much we should seek to reduce poverty. Many will agree on the necessity of reducing absolute poverty - but how far should we take it? Should we aim for perfect equality (Communism) or should we aim for equality of opportunity?

Another issue with reducing poverty is that measures to reduce poverty may cause unintended consequences - e.g. higher income tax on high earners may create disincentives to work. Giving benefits to the low paid may reduce incentives to work.
Volatile prices
Some agricultural markets can have volatile prices. A glut in supply can be bad news because the fall in price can lead to lower revenue for farmers. It could even cause some to go out of business because of a bad year. These volatile markets can cause swings in economic fortunes.
Irrational behaviour
In some asset markets, we have seen volatile prices exacerbated by irrational exuberance. Consumers have often been caught up in a market frenzy - hoping that rising prices will make them richer - and expecting prices to keep rising. We can see this in issues such as tulip mania, the South Sea Bubble, railway mania, and the recent property bubbles.

Macroeconomic problems

Mass unemployment 1933

Unemployment has been a major economic problem in advanced economies. One of the principal causes of unemployment is swings in the business cycle. A fall in demand for goods during a recession, causes people to be laid off. Because of the depressed state of the economy, there is an imbalance between demand and supply of workers.

Unemployment can also be caused by rapid changes in labour markets, for examples, unskilled workers unable to gain employment in a high tech economy. Unemployment is a problem because it is a waste of resources, but more importantly, it leads to very high personal costs, such as stress, alienation, low income and feelings of failure.
Recession
A recession is a period of negative economic growth - a decline in the size of the economy. It exacerbates problems of inequality and unemployment. A problem of recession is that it can create a negative spiral. When demand falls, firms lay off workers. The unemployed have less money to spend causing further falls in demand.

In the great depression, unemployment rose to over 20% - the unemployed also had little support and relied on soup kitchens.
Inflation
High inflation can be a serious problem if prices rise faster than wages and nominal interest rates. In periods of rapidly rising prices, people with savings will see a decline in their real wealth. If prices rise faster than wages, then people's spending power will decline. Also, rapidly rising prices creates confusion and uncertainty and can cause firms to cut back on investment and spending.

Countries which have experienced hyperinflation, have seen it as a very traumatic period because all the economic certainty is washed away, leaving people without any certainty. Hyper inflation can cause not just economic turmoil but political turmoil as people lose confidence in the economic situation of the economy.
Balance of payments/current account deficit
A current account deficit on the balance of payments means an economy is importing more goods and services than it is exporting. To finance this current account deficit, they need a surplus on the financial/capital account. For many modern economies, a small current account deficit is not a problem. However, some developing economies have experienced a balance of payments crisis - where the large deficit has to be financed by borrowing, and this situation usually leads to a rapid devaluation of the currency. But, this devaluation increases the price of imports, reduces living standards and causes inflation.
Exchange rate volatility
In some cases, the exchange rate can cause economic problems. For example, countries in the Euro were not able to change the value of their currency against other Eurozone members. Because countries like Greece and Portugal had higher inflation rates, they became uncompetitive. Exports fell, and they developed a large current account deficit. The overvalued exchange rate caused a fall in economic growth.

On the other hand, a rapid devaluation can cause different problems. For example, when the price of oil fell, oil exporting countries saw a decline in export revenues, leading to a fall in the value of the currency. A rapid devaluation causes the price of imports to rise and causes both higher inflation and lower growth. A difficult problem for policymakers to deal with.

Development economics

Developing economies face similar economic problems, but any issue is magnified by low GDP and high levels of poverty. For example, unemployment in a developing economy is more serious because there is unlikely to be any government insurance to give a minimum standard of living.

Poverty cycle. Some developing economies may be stuck in a poverty trap. Low growth and low saving ratios lead to low levels of investment and therefore low economic growth. This low growth and poverty cause the low savings and investment to be continued.
More examples
Last updated: 17th November 2019, Tejvan Pettinger, www.economicshelp.org, Oxford, UK

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The fundamental economic problem is the issue of scarcity but unlimited wants. Scarcity implies there is only a limited quantity of resources, e.g. finite fossil fuels. Because of scarcity, there is a constant opportunity cost - if you use resources to consume one good, you cannot consume another.

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New Monopoly/Free Trade Game, Call Market with Linear S and D Defaults for Explaining Efficiency Effects, One Million Participant Logins as of June 2017!

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National Assessment of Educational Progress in Economics

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National Assessment of Educational Progress in Economics

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national assessment of educational progress

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NAEP - Economics - Scheduled NAEP Economics Assessments, Past Results, Trends, Methods

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Economics. Scheduled NAEP economics assessments, past results, trends, methods

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What is the 'Herfindahl-Hirschman Index - HHI'

The Herfindahl-Hirschman index (HHI) is a commonly accepted measure of market concentration. It is calculated by squaring the market share of each firm competing in a market, and then summing the resulting numbers, and can range from close to zero to 10,000. The U.S. Department of Justice uses the HHI for evaluating potential mergers issues.

BREAKING DOWN 'Herfindahl-Hirschman Index - HHI'

The closer a market is to being a monopoly, the higher the market's concentration (and the lower its competition). If, for example, there were only one firm in an industry, that firm would have 100% market share, and the HHI would equal 10,000, indicating a monopoly. If, there were thousands of firms competing, each would have nearly 0% market share, and the HHI would be close to zero, indicating nearly perfect competition.

The U.S. Department of Justice considers a market with an HHI of less than 1,500 to be a competitive marketplace, an HHI of 1,500 to 2,500 to be a moderately concentrated marketplace, and an HHI of 2,500 or greater to be a highly concentrated marketplace. As a general rule, mergers that increase the HHI by more than 200 points in highly concentrated markets raise antitrust concerns, as they are assumed to enhance market power under the section 5.3 of the Horizontal Merger Guidelines jointly issued by the department and the Federal Trade Commission (FTC).

Herfindahl-Hirschman Index Example Calculations

The HHI is calculated by taking the market share of each firm in the industry, squaring them, and summing the result:

HHI = s1^2 + s2^2 + s3^2 + ... + sn^2 (where s is the market share of the each firm expressed as a whole number, not a decimal)

Consider the following hypothetical industry with four total firms:

Firm one market share = 40%

Firm two market share = 30%

Firm three market share = 15%

Firm four market share = 15%

The HHI is calculated as:

HHI = 40^2 + 30^2 + 15^2 + 15^2 = 1,600 + 900 + 225 + 225 = 2,950

This is considered a highly concentrated industry, as expected since there are only four firms. But the number of firms in an industry does not necessarily indicate anything about market concentration, which is why calculating the HHI is important. For example, assume an industry has 20 firms. Firm one has a market share of 48.59% and each of the 19 remaining firms have a market share of 2.71% each. The HHI would exactly 2,500, indicating a highly concentrated market. If firm number one had a market share of 35.82% and each of the remaining firms had 3.38% market share, the HHI would be exactly 1,500, indicating a competitive market place.

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A commonly accepted measure of market concentration. It is calculated by squaring the market share of each firm competing in a market, and then summing the resulting numbers. The HHI number can range from close to zero to 10,000. The HHI is expressed as: HHI = s1^2 + s2^2 + s3^2 + ...

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Apr 15, 2024 | Mobile Devices

Quarterly smartphone market share worldwide by vendor 2009-2024

Samsung held the largest slice of the global smartphone market by shipments during the first quarter of 2024, followed by Apple. Xiaomi has taken a tight grip on the third position, accounting for a market share of 14 in the first quarter of 2024.

Samsung and Apple smartphone sales Smartphone vendors have been suffering from the events of the past couple of years, including the pandemic and the economic downturn. However, they all appear to be recovering, as shown by the recent increase in shipments. For instance, mostly based on the main line of Galaxy Series, Samsung's smartphone shipments totaled nearly 226.5 million units globally in 2023.

Next to Samsung, Apple is a major manufacturer of smartphones worldwide, with the company shipping more than 232 million iPhones worldwide in 2023 - a number that made Apple leading smartphone vendor for the first time ever. Apple's sales tend to be very cyclical, peaking in the fourth quarter each year, much like in the fourth quarter of 2023, when they took the first spot in terms of units shipped globally with around 80.5 units.

Huawei falls outside the leading five vendors While Apple and Samsung are typically the two major companies challenging for the top spot, Huawei had provided a strong challenge in recent years. Particularly, the Chinese company managed to climb the smartphone market ladder between 2011 and 2020, recording shipments of over 32 million smartphones in the fourth quarter of 2020. However, strong performances from rivals like Xiaomi and the effects of the U.S. trade ban have since seen Huawei fall outside the list of top five vendors by smartphone shipments.

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Apr 16, 2024 | Business Enterprise

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The granddaughter of the L'Oréal founder, Francoise Bettencourt Meyers was the wealthiest woman in the world as of April 2024. She and her family's net worth was estimated at 99.5 billion U.S. dollars. Alice Walton was ranked second with over 70 billion U.S. dollars in net worth. By comparison, the richest man in the world had a fortune of over 258 billion dollars as of December 2023.

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Apr 16, 2024 | Population

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According to data published by the National Bureau of Statistics of China in January 2024, the Chinese population decreased by 2.08 million people to around 1,41 billion in 2023. This was a stronger decrease than expected by the IMF, which underestimated China's population decrease already in 2022. China arrived at the turning point of its population growth earlier than expected by many observers, and current IMF estimates for the total population until 2029 very likely need to be adjusted downwards.

Population development in China China had for a long time been the country with the largest population worldwide, but according to UN estimates, it has been overtaken by India in 2023. As the population in India is still growing, the country is very likely to remain being home of the largest population on earth in the near future. Due to several mechanisms put into place by the Chinese government as well as changing circumstances in the working and social environment of the Chinese people, population growth has subsided over the past decades, displaying an annual population growth rate of -0.15 percent in 2023. Nevertheless, compared to the world population in total, China held a share of about 18 percent of the overall global population in 2022.

China's aging population In terms of demographic developments, the birth control efforts of the Chinese government had considerable effects on the demographic pyramid in China. Upon closer examination of the age distribution, a clear trend of an aging population becomes visible. In order to curb the negative effects of an aging population, the Chinese government abolished the one-child policy in 2015, which had been in effect since 1979, and introduced a three-child policy in May 2021. However, many Chinese parents nowadays are reluctant to have a second or third child, as is the case in most of the developed countries in the world. The number of births in China varied in the years following the abolishment of the one-child policy, but did not increase considerably. Among the reasons most prominent for parents not having more children are the rising living costs and costs for child care, growing work pressure, a growing trend towards self-realization and individualism, and changing social behaviors.

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Apr 17, 2024 | Online Retail

Visitors to most popular online retailers in Japan 2024

As of March 2024, Amazon Japan's e-commerce website was the leading e-commerce site accessed in Japan, with almost 587 million visits. The subsidiary of the American technology company competes in the Japanese e-commerce market against the major business-to-consumer (B2C) retailers Rakuten and Yahoo Japan.

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Apr 15, 2024 | Soccer

Most German soccer titles 1903-2024, by club

In 2024 Bayer Leverkusen won the Bundesliga for the first time, with the team going unbeaten in all competitions for over 40 matches. Previously, Bayern Munich had won the league every year since 2013.

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Apr 16, 2024 | Vehicle Manufacturing

Latin America: number of motor vehicles produced 2013-2023, by country

In the last years, Mexico has positioned itself as the largest producer of vehicles in Latin America. In 2023, the North American country produced just over four million motor vehicles, followed by Brazil, where around 2.3 million units were produced. In addition, most of the motor vehicles produced in Mexico were light commercial vehicles.

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