Explain how the basic economic problem leads to choice?

The basic economic problem is scarcity, which is where there are not enough resources in the world to satisfy everybody's desires. This is because humans are greedy and their wants are unlimited. There is a distinction, however, between wants and needs: wants are desires which are not necessary for survival; whereas needs are required for survival. The result of the problem of scarcity, is that everyone must make choice. This is true for consumers, firms, and governments.
Consumers have limited income and so must make their choices based on maximising personal satisfaction/utility. For example, a consumer may have to choose between buying a house or car, as they may not be able to afford both at a particular point in time. Firms have limited resources or factors of production with which they are able to produce goods and services. Since firms are profit maximisers, they will make choices based on profit. Governments, on the other hand, have limited taxation revenue which they are able to spend on public goods and services. As a result, they are forced to make choices with the aim of maximising public wellbeing. For example, they may have to choose between a new school or hospital.