Scarcity

• A basic understanding of economics makes you able to distinguish between common sense and nonsense.
• You will find new ways of thinking about current events and about personal and business decisions, as well as politics.
• Economics is the study of how humans make decisions in the face of scarcity. These can be individual decisions, family decisions, business decisions or societal decisions.

The Problem of Scarcity

• If you look around carefully, you will see that scarcity is a fact of life.
• Scarcity means that human wants for goods, services and resources exceed what is available.
• Resources, such as labor, tools, land, and raw materials are necessary to produce the goods and services we want but they exist in limited supply.

• Of course, the ultimate scarce resource is time- everyone, rich or poor, has just 24 hours in the day to try to acquire the goods they want.
• At any point in time, there is only a finite amount of resources available.
• Think about all the things you consume: food, shelter, clothing, transportation, healthcare, and How do you acquire those items? You do not produce them yourself. You buy them.
• How do you afford the things you buy? You work for Or if you do not, someone else does on your behalf.
• Yet most of us never have enough to buy all the things we want. This is because of Scarcity.

So how do we solve this problem?

• Every society, at every level, must make choices ( Trade-Offs ) about how to use its resources.
• Families must decide whether to spend their money on a new car or a fancy vacation.
• Towns must choose whether to put more of the budget into police and fire protection or into the school system.
• Nations must decide whether to devote more funds to national defense or to protecting the environment.
• In most cases, there just isn’t enough money in the budget to do everything.
• A dollar ( or resource used ) spent on one choice is no longer present for another choice
• Economic trade-offs arise from the lack of sufficient resources (scarcity) to meet society’s wants and needs.
• What are the Scarce Resources that we need to make choices of how to allocate them ?
• A resource is anything that can be used to produce something else.
• The economy’s resources, sometimes called factors of production, can be classified into four categories:
  1. land (including timber, water, minerals, and all other resources that come from nature)
  2. labor (the effort of workers)
  3. capital (machinery, buildings, tools, and all other manufactured goods used to make other goods and services)
  4. entrepreneurship (risk taking, innovation, and the organization of resources for production).

• Most factors of production (such as land, labor, and capital) are scarce, but some factors of production (such as established knowledge) may not be scarce due to their non-rival nature if some one consumed knowledge it will still be available for others to consume.
• To make the concept of none-rival nature clear , fresh air is available for everyone to use , one person breathing does not prevent another person from breathing

Economic Models 

• Economists carry a set of theories in their heads like a carpenter carries around a toolkit.
• When they see an economic issue or problem, they go through the theories they know to see if they can find one that fits.
• Then they use the theory to derive insights about the issue or problem. In economics, theories are expressed as diagrams, graphs, or even as mathematical equations.
• Economists do not figure out the answer to the problem first and then draw the graph to illustrate. Rather, they use the graph of the theory to help them figure out the answer.
• Both micro and macroeconomics are explained in terms of theories and models.