top-rated free essay

ECONOMICS

By Marylou-Ancheta Sep 07, 2014 1766 Words

ECONOMICS
the branch of knowledge concerned with the production, consumption, and transfer of wealth.

the social science that studies economic activity to gain an understanding of the processes that govern the production, distribution and consumption of goods and services in an exchange economy.

SCARCITY: THE NEED TO CHOOSE
Scarcity is the fundamental economic problem of having seemingly unlimited human wants in a world of limited resources. It states that society has insufficient productive resources to fulfill all human wants and needs. A common misconception on scarcity is that an item has to be important for it to be scarce. However, this is not true, for something to be scarce, it has to be hard to obtain, hard to create, or both. Simply put, the production cost of something determines if it is scarce or not. For example, although air is more important to us than diamonds, it is cheaper simply because the production cost of air is zero. Diamonds on the other hand have a high production cost. They have to be found and processed, both which require a lot of money. Additionally, scarcity implies that not all of society's goals can be pursued at the same time;trade-offs are made of one good against others.

The basic economic problem that arises because people have unlimited wants but resources are limited. Because of scarcity, various economic decisions must be made to allocate resources efficiently. When we talk of scarcity within an economic context, it refers to limited resources, not a lack of riches. These resources are the inputs of production: land, labor and capital.  People must make choices between different items because the resources necessary to fulfill their wants are limited. These decisions are made by giving up (trading off) one want to satisfy another. 

Scarcity means that people want more than is available. Scarcity limits us both as individuals and as a society. As individuals, limited income (and time and ability) keep us from doing and having all that we might like. As a society, limited resources (such as manpower, machinery, and natural resources) fix a maximum on the amount of goods and services that can be produced

Scarcity requires choice. People must choose which of their desires they will satisfy and which they will leave unsatisfied. When we, either as individuals or as a society, choose more of something, scarcity forces us to take less of something else. Economics is sometimes called the study of scarcity because economic activity would not exist if scarcity did not force people to make choices.

When there is scarcity and choice, there are costs. The cost of any choice is the option or options that a person gives up. For example, if you gave up the option of playing a computer game to read this text, the cost of reading this text is the enjoyment you would have received playing the game. Most of economics is based on the simple idea that people make choices by comparing the benefits of option A with the benefits of option B (and all other options that are available) and choosing the one with the highest benefit. Alternatively, one can view the cost of choosing option A as the sacrifice involved in rejecting option B, and then say that one chooses option A when the benefits of A outweigh the costs of choosing A (which are the benefits one loses when one rejects option B).

The widespread use of definitions emphasizing choice and scarcity shows that economists believe that these definitions focus on a central and basic part of the subject. This emphasis on choice represents a relatively recent insight into what economics is all about; the notion of choice is not stressed in older definitions of economics. Sometimes, this insight yields rather clever definitions, as in James Buchanan's observation that an economist is one who disagrees with the statement that whatever is worth doing is worth doing well. What Buchanan is noting is that time is scarce because it is limited and there are many things one can do with one's time. If one wants to do all things well, one must devote considerable time to each, and thus must sacrifice other things one could do. Sometimes, it is wise to choose to do some things poorly so that one has more time for other things.

BASIC QUESTION IN ECONOMICS

What goods to produce
The first fundamental question is: what goods will be produced? In economics, it is understood that goods and services do not just exist, they are produced by humans. The decision to produce a certain product has to be conscious and deliberate. Usually, the answer to this question means a lot for a person’s view of economics. In modern economics, we produce anything that people are willing to buy. In this sense therefore production is done to meet market needs. How to produce the goods and services

The second question is how can we produce the said goods and services? To answer this question appropriately one has to think like an economist. To an economist, logic demands that you produce goods and services using the most cost-effective method. However, one cannot ignore other factors such as the quality of production which has to be kept in mind too.

Who gets the goods and serviceslFor whom to produce?
As for who gets the goods and services that are produced, the answer is anyone who is able and willing to buy the goods and services. According to the classical theory of economics a man can do something for their own self interest and this will be helpful to everyone else. In a typical market, someone sells goods and services in order to get profits. This is self interest. But by selling these goods and services, they are able to help meet the needs of a consumer too. Likewise, a consumer will buy goods and services for their own benefit, but in the process, they will be able to help the producer by boosting their business.

How will changes be effected and accommodated?
This question is about changes and progress in an economy. How are they going to be effected and by who? In a typical modern economy, changes are effected by individuals who do so for their own good. For example, a manufacturer will improve the quality of their product, not because it is the right thing to do, but because if they do so, then they are likely to attract more customers. Changes are therefore effected by self interested players in an economy, and they are accommodated by self interested players too.  If a one person improves on their product, then competitors will also have to improve theirs too or risk being slowly pushed from the market.

MAJOR DIVISION IN ECONOMICS
Microeconomics — deals with the economic behavior of individual units such as the consumers, firms and the owners of the factors of production. Such specific economic units constitute a very small segment of the whole economy. Their activities are presented and discussed in details. Macroeconomics — deals with the economic behavior of the whole economy or its aggregates such as government, business and household. An aggregate is composed of individual units. The operations of the various aggregates and their inter­relationships are analyzed to provide a profile of the economy as a whole. Macroeconomics is concerned with the discussion of topics like gross national product, level of employment, national income, general level of prices, total expenditures, etc.

Scarcity and Choices
When things are scarce, we have to make choices. If the market doesn't have strawberries, you have to decide if you really want strawberries. If you do, then you will have to travel to different markets to try to find some strawberries. If you don't find any strawberries anywhere, then you will have to go without. Scarcity has forced you to go without strawberries. In the same way, the latest Harry Potter book might be difficult to find because you weren't one of the early people at the bookstore the day the book came out. If your local bookstore ordered only 5,000 copies and 4,998 people bought the book before you got there, then you'd better hope you're one of the next 2 people through the door. The same is probably true at other bookstores in your area. We can say that the latest Harry Potter book is scarce because its supply is low. Another choice you might have to make when something is scarce is how much you are willing to pay for it. If strawberries are normally a low price, then they might have a higher price when they are scarce. If that is the case, then you will have to decide whether you want to pay the higher price. You'll have to decide how badly you want those strawberries. If you have only a certain amount of money, then you'll have to buy the strawberries using some of the money you had planned to spend on other foods. Scarcity has forced you to make a choice between foods. For many people, making difficult choices is a way of life. If you don't have enough money to buy all the foods you need (and many, many people don't), then you have to make choices. And the more scarcity you see on the shelves of the market, the more difficult choices you have to make. The same is true if the scarcity is created only by a seasonal market, like the strawberries or other fruits and vegetables. Some crops grow better at certain times of the year, so they are harvested at those times and sent to market at those times. If you want strawberries and it's not strawberry season, then the supply of strawberries is most likely scarce, if any are available at all. Lastly, sometimes scarcity is created only because a supplier has sold out of a certain product. A sale on older Harry Potter books might result in a bookstore's selling all of the books on hand. And if other bookstores have similar sales, then it will be very difficult to find one of those older Harry Potter books. This is scarcity caused by too many people trying to buy too few things. Scarcity can be a powerful thing. It can force you to make difficult choices. It can force you to go without. It can force you to pay more than you wanted to. It can force you to look elsewhere for the thing you want. The next time you discover that something you want isn't available, remember the idea of scarcity. What choice will you make?

Cite This Document

Related Documents

  • Economics

    ...Economics is the social science that studies the behavior of individuals, households, and organizations (called economic actors, players, or agents), when they manage or use scarce resources, which have alternative uses, to achieve desired ends. Agents are assumed to act rationally, have multiple desirable ends in sight, limited resources to ...

    Read More
  • What is Economics?

    ...Kofie B Primus Professor Soumyajit Sukul ECON 210 15 November 2009 What is Economics? Economics is the concept that contracts the manufacture, allotment, and use of produce and services. It is the study of how the use of inadequate resources will best satisfy the wants, needs and desire of the greatest number of people. The study...

    Read More
  • What is Economics

    ... Economics Definition: Economics is a social Science dealing with the Economic Problem. • Social: Science that deals with human beings. • Dealing: Means facing and not solving. • Economic Problem: The problem of Scarcity (The inability to satisfy all the needs & wants)  Economics is giving us the rules of rationality; the a...

    Read More
  • Economics

    ...AED 1312 WEEK 1 Contents  Introduction  Definition  Microeconomics vs Macroeconomics  Basic economics concepts  Basic economics problems  Production possibilities curve INTRODUCTION  Economics is one of the oldest disciplines among the humanities and is categorized as a social science.  Economics examines and...

    Read More
  • Economics and Opportunity Cost

    ...The Cost of Something Mankiw's Ten Principles of Economics Opportunity cost is the value of the next best alternative in a decision. Imagine that you have $150 to see a concert. You can either see "Hot Stuff" or you can see "Good Times Band." Assume that you value Hot Stuff's concert at $225 and Good Times' concert at $150. Both concerts c...

    Read More
  • Objectives for Economic Class

    ...at the end of the topic coverage. Student success at achieving the objectives depends on class attendance, diligent reading, study, and commitment to the material. Tests will be constructed on the basis of the stated learning objectives. Topic 1: “What is microeconomics about?” 1.1 Understand the basic role of economics in human affairs 1.1....

    Read More
  • Basic Economic problem of Scarcity

    ...The basic economic problem of scarcity refers to the situation in which finite factor inputs are insufficient to produce goods and services to satisfy infinite human wants. It is incontrovertible and irrefutable that all societies face the basic problem of scarcity due to limited resources and unlimited wants. Scarcity makes it necessary for ...

    Read More
  • Economics for Business Assignment Template

    ...Programme: Diploma in Business Management Studies Unit Number and Title: 600/1068/X; Economics for Business Module Tutor: Moslahur Reza/Murshed Thakur Submission Date September 21, 2012 Introduction IN T...

    Read More

Discover the Best Free Essays on StudyMode

Conquer writer's block once and for all.

High Quality Essays

Our library contains thousands of carefully selected free research papers and essays.

Popular Topics

No matter the topic you're researching, chances are we have it covered.