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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

What is the role of price system in The market economy
Cyrielle Reply
(1).Income is the main determined of macro economics. (a). true (b). false
Manisha Reply
yes
Anjali
tell me correct ans with examples!!
Manisha
yes
The
what yes yes?
Manisha
mam actually I want to say that income is not the main determinant of macro economics.
The
based on your knowledge about the production possibility frontier,demonstrate an assumption of supposed schedule of ppe for the production of rice and face masks by Bangladesh.use graphical representation as well
Ashraf Reply
hay
Ashraf
hlo
Karan
can you answer this
Ashraf
whats tradeoff
JUSTIN Reply
tradeoff is a balance achieved between two desirable but conflicting things
Faith
can I read in Hindi?
Rashmi Reply
don't know..
Azka
why not
Omid
Omid Amini....how?
Rashmi
sure thing
Faith
mention two necessities of estimation of national income in india ?
Krishna Reply
what means the supply
Abdourahamane Reply
hello
mosisa
hii
SHWETA
hi
Aleem
its means amount of product available right now.
Aleem
is everything important here🙂
Alizy
I mean anything*
Alizy
u can read it
Aleem
it's mean something needed or wanted
Alizy
where are from shweta
Aleem
where are you from shweta
Aleem
Hello
Anas
it may mean the stock available
DR
to make something needed or wanted available to someone
Faith
is someone who manufactures something
Faith
What is the cost-benefit analysis?
Hannah Reply
A cost benefit analysis is a process by which organizations can analyze decisions, systems or projects, or determine a value for intangibles. The model is built by identifying the benefits of an action as well as the associated costs and subtracting the costs from benefits.
sanga
thanks!
Hannah
Cost benefit analysis is a process used primarily by businesses that weighs the sum of the benefits, such as financial gain, of an action against the negatives, or costs, of that action.
ALIM
process of cost benefit analysis and decision making crieteria
Santosh
hello everyone
BtsARMY
hello every one,
Dereje
hello everyone
waqar
what is the opportunity cost?
SHWETA
The next best option forgone is call the Opportunity cost of selection one.
Oshadi
who is producer?
rishabh Reply
karan johar
Mohd
shut up mr.mohd
rishabh
it's serious question..
rishabh
shut up mr.mohd
rishabh
simple who produce good
Alizy
who is aconsumer?
Ritik Reply
who uses the commodity
Kanza
a consumer is one that buys good for consumption .
rishabh
Kanza consumers uses the commodity..
rishabh
why do we put tariff on import goods
Salam Reply
Maybe to give national enterprises better opportunities than foreign ones... or just to get more money to the national budget in any way possible. I suppose it allows also to control import and therefore its influence on national economy and other countries economy too.
Pawe
i think to control import or for development of his own industry
RAJPOOTCHANAL
what were the events during the great depression that made classical economy tenets ineffective
Alby Reply
please what is the answer for the following question; derive the expression for a two sector Keynesian model from sowotuom land economy and state all the two components in the expression.
Alby Reply
No idea
ahmad
meaning nature and scope of macroeconomics
Diksha Reply
meaning of macroeconomics
Diksha
meaning of macroeconomics
Diksha
meaning of macroeconomics
Diksha
Macroeconomics covers aggregate or in simple words overall economy of country or world while microeconomics was just concerned with individual economies
Hamza
Hope this helped you, you can search it more on Google there is a YouTube page by the name of jacob Clifford
Hamza
How aggregate demand and output gap are related explain in the light of keynesian cross diagram
Muhammad Reply

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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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