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By the end of this section, you will be able to:

  • Discuss the importance of studying economics
  • Explain the relationship between production and division of labor
  • Evaluate the significance of scarcity

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. 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 it this way: In 2015 the labor force in the United States contained over 158.6 million workers, according to the U.S. Bureau of Labor Statistics. Similarly, the total area of the United States is 3,794,101 square miles. These are large numbers for such crucial resources, however, they are limited. Because these resources are limited, so are the numbers of goods and services we produce with them. Combine this with the fact that human wants seem to be virtually infinite, and you can see why scarcity is a problem.

Scarcity of resources

The image is a photograph of two people who are homeless and sleeping on public city benches.
Homeless people are a stark reminder that scarcity of resources is real. (Credit: “daveynin”/Flickr Creative Commons)

If you still do not believe that scarcity is a problem, consider the following: Does everyone need food to eat? Does everyone need a decent place to live? Does everyone have access to healthcare? In every country in the world, there are people who are hungry, homeless (for example, those who call park benches their beds, as shown in [link] ), and in need of healthcare, just to focus on a few critical goods and services. Why is this the case? It is because of scarcity. Let’s delve into the concept of scarcity a little deeper, because it is crucial to understanding economics.

The problem of scarcity

Think about all the things you consume: food, shelter, clothing, transportation, healthcare, and entertainment. 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 pay. 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 it?

Visit this website to read about how the United States is dealing with scarcity in resources.

Every society, at every level, must make choices 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. So why do we not each just produce all of the things we consume? The simple answer is most of us do not know how, but that is not the main reason. (When you study economics, you will discover that the obvious choice is not always the right answer—or at least the complete answer. Studying economics teaches you to think in a different of way.) Think back to pioneer days, when individuals knew how to do so much more than we do today, from building their homes, to growing their crops, to hunting for food, to repairing their equipment. Most of us do not know how to do all—or any—of those things. It is not because we could not learn. Rather, we do not have to. The reason why is something called the division and specialization of labor , a production innovation first put forth by Adam Smith , [link] , in his book, The Wealth of Nations .

Questions & Answers

Explain the differences between aggregate demand shocks and aggregate supply shocks
Swagger Reply
what are the measures being taken to reduce inflation in LDCs
Athumam Reply
increase level of production,reduce rates of tax charged
mashauri
What is economic growth!
Doris Reply
Microeconomics can simply be refers to as the study of a unit economy while macroeconomics can be regarded as a study of economy as a whole or aggregate economy of a country.
Hamzat Reply
Full employment price stability economic growth
Hamzat
using geometry, discuss the four interrelated flows in the circular flows of income
Ahmed Reply
who is there?
SHAHRUKH Reply
Demand refers to the quantity of a commodity that one can buy supported by the willingness and the ability to buy
Noor Reply
Which of the following are assets of the Federal Reserve? a. Treasury bills held by the Federal Reserve b. cash in circulation c. Loans made by commercial banks d. the reserves of commercial banks at the Federal Reserve
Julya Reply
D
Neeha
a
Sushovan
d
Roger
what are the four functions served by money
Michele Reply
It serves as a medium of exchange
Zaharaddeen
It serves as a store of value
Zaharaddeen
It serves as a unit of account
Umar
It also serves as a standard for Differed Payment.
Umar
Acts as a measure of value.
Humphrey
acceptability
GGPS
hi
Shaxboz
hello
Md
welcome
Shaxboz
Hey, I am a new member.
Abdul
Store of value
Bokwe
Hello i want your help if there is someone online
Athumam
hello
Prem
how are you doing
Athumam
what is balance of payment deficit
Athumam
A nation or region, which is deficit in exports, and Imports more goods and services and for the payment for imports, it must be borrowed from other states or Nations. mostly, between countries.
Prem
Pls Wat ar D Factors to Consedered To Saving
IBRAHIM
savings
BENJAMIN
Yah
IBRAHIM
Yes
IBRAHIM
Hello guys how are you doing
Tantoh
I will say a balance of payment deficit is when a country import more goods,services and capital than it export.The country most borrowed from other countries to pay for it imports.
Tantoh
income
Vivek
can anyone tell me that why in the income and consumption curve the income is on x axis?
bechar Reply
why inflation in double digit is not good for economy
Obaid Reply
what is mean by zero inflation
Obaid
some time it is good but some time it is not...
bechar
the condition of that economy tell you. is it good are bad?
bechar
the definition of the law of demand
Aley Reply
law of damand states all else remains constant or what we can say is ceteris peribus,quantity demanded for a commodity extends with fall in price and vice versa. law of demand explains inverse relationship between price and qua ntity demanded
Gaurav
What is demand and supply
Antwi Reply
Demand refers to how much of that product, item, commodity, or service consumers are willing and able to purchase at a particular price. In other words, supply refers to how much the producers of a product or service are willing to produce and can provide to the market with limited amount of resou
Husna
Hello dear
habibrahman
what is gdp per capital and why it is used for?
Era Reply
gross domestic product
prince
gdp per capita is the gross domestic product per person (GDP/population) and is a better indicator of economic health and living standards than GDP alone.
Gina
thank you so much 😘
Era
please explain shift in production possibility curve
Kobby
advances in technology can cause a shift in the ppf because output can increase with use of the same amount of resources (laborers can produce more efficiently, and suppliers are willing to sell more)
Gina
but equally natural shocks ie earthquakes or war can move the ppf inward so reducing production capicity
jax
what is crowding out effect?
Sera Reply
What is SAT AND GPA
prince

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Source:  OpenStax, Macroeconomics. OpenStax CNX. Jun 16, 2014 Download for free at http://legacy.cnx.org/content/col11626/1.10
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