why do problems related to allocation of resources in an economy arise? Explain.

Every economy is endowed with limited amount of resources. This is basically due to the fact that the wants are unlimited and the resources can be allocated for the production of various goods and services. The allocation of resources also involves a cost in terms of sacrifising the production of one good while allocating the resources for the production of one. Thus, in order to utilise the scarce resources in the best possible manner, an economy needs to decide on the cost of allocation of the resources. All of this, in turn gives rise to the problem of allocation of resources.

This topic has been extensively covered in our study material. You can find it in Microeconomics- Introduction (Lesson-3) of our study material.