To formalise, 'Economics is the study of how people allocate their limited resources to satisfy their unlimited wans - the study of the economic problem, which is one of scarcity and choice.' #testanswer
To solve the BEP, three basic questions should be answered;
What to produce?
How to produce?
For whom to produce?
In doing so, economics is a social science
Wants are unlimited, recurring, complimentary (iphone -> airpods), specific to a person, location and time, and have varying levels of importance
Scarcity
Anything that has a price is scarce.
Free goods are those that are not relatively scarce and do not have a price (for example, air breathed)
It is important to not confuse scarcity with a shortage
A shortage occurs when the supply of something is limited
Scarcity is the fundamental issue of infinite wants
Choice
Because of scarcity - because of the limited resources, we must choose between one option or the other
For example, I have the limited amount of $15 - do i
a) Go to the movies or
b) Go to a restaurant?
Making choices when confronted by scarcity involves a trade-off
Opportunity Cost
This all leads into the concept of opportunity cost.
Choice, as demonstrated above, must exist due to the BEP
Because of this, whenever making a choice, we are sacrificing any other choices we could have made
Opportunity cost is therefore the value of this other choice - the value of the next best alternative foregone
The PPF is one of many Economic Models which describes opportunity cost
The PPF can also illustrate economic growth through shifts right and left