What is the central economic problem?

The central economic problem is scarcity which leads to an opportunity cost. In simple words human wants are infinite but resources are finite (having said that we need to distinguish between human wants and human needs). Therefore scarcity leads to people having to make choices. A choice needs to be made about which wants to satisfy with our limited resources and by doing so we are sacrificing other options, since resources have alternative uses. The sacrifice of our next best alternative is known as the opportunity cost. The same can happen in an individual basis as well since according to the maximising theory, individuals seek to maximise their utility in a given constraint budget, meaning that they have to decide which wants they want to satisfy with their available resources and which they are willing to sacrifice. Thus in this context it can be argued that the purpose of economic activity is to allocate the resources available efficiently in order to produce goods and services that satisfy consumer's needs and wants (effective demand) and avoid the mismatch of production and demand (ie the waste of resources).