Human beings have unlimited wants, yet limited resources to achieve those wants. This is known as the problem of scarcity. All people are faced with this problem and in most countries, people face a limited budget with which they could spend on the things they want to purchase. Very wealthy people still face the problem of scarcity because although they may have enough money to purchase anything they want, they only have 24 hours with which they could spend time on those things. They may also be limited by the amount of space where they could store any goods they have purchased. Scarcity affects all households because they must make choices as to what to spend resources (time, money, other) because they can not have everything.

Companies and governments also face the problem of scarcity. Companies only have so many resources, natural, human or capital, with which to create new goods and services. If they make a production decision with their resources, they are giving up the opportunity to produce something else. Governments have a limited budget with which they can spend time or money on so they must make choices in a world of scarcity.