The Greek word for the economy is to house and distribute. In household management, it’s all about how to manage resources. The issue lies in the fact that our desires are limitless and our resources are limited. The definition of the economy contains the four production variables of land, labor, capital, and entrepreneurship. Let us learn further how these factors contribute to scarcity and choice in economics. Moreover, scarcity and choice basic to the study of economics will be discussed along with the explanation of how scarcity and choice goes together.
1. What is Scarcity and Choice in Economics?
Economics is the social science that shows how an individual uses the resources to satisfy their wants which are always unlimited. It not only pertains to only one group of people but also to homemakers and businessmen because of their understanding of how to spend money and live a content life. Let’s discuss what is scarcity and choice in economics.
- Scarcity: The main idea of production is to satisfy the needs of the customers. However, our presumptions tell us that resources are always limited. Every resource is scarce and we need to adjust accordingly to satisfy our wants. The demand is always higher than the supply, because of the inadequate resources and our limitless desire. Right choices will only help us achieve that level of satisfaction. The solution is to allocate the resources in such a way that every individual must reach the maximum level of satisfaction.
- Choice: Every economic problem arises from choice. Since there are limited resources, there must be a choice of choosing what is important at the time. This is the basic understanding that a person has to make the choice of whether he can buy them or leave them, with the idea of giving up. (See What is Empowered Consumerism?)
2. Scarcity and Choice Basic to the Study of Economics: Its Implications
If there is scarcity, choices are mandated. Scarcity is the infinite nature and resources available for human wants. The choice is the individual’s decision regarding sharing and using the available resources. Scarcity and choice in economics both are at the heart of economic studies as it shows how the individual and society have to make a choice to allocate and distribute resources. On the contrary, the branch of economics is made to understand and explain choices and time allocation. It shows how much time we choose to work and the importance of labor in the market. We think that only resources are limited but time and skill also follow them. (See What is Production Concept in Marketing?)
3. How do Scarcity and Choice goes Together?
The supply and demand explain to us the prices of any commodity. Scarcity is a choice with the motive of earning. If the retailers and wholesalers build an impression that the commodity has a scarce supply then people will be happy to pay more any day. To understand scarcity and choice in economics better in terms of financial management, check the tips to control your finances.
4. What are the Types of Scarcity?
Scarcity is of two types, explained further as absolute and relative.
- Relative Scarcity – It is a situation where the commodity is limited in supply. It is also scarce in comparison to the demand. In fact, relative scarcity refers to the situation where supply does not meet demand. It occurs due to the limited supply of resources rather than failure to supply.
- Absolute Scarcity – Absolute scarcity is the situation where the supply of a commodity itself is limited. It is a situation where commodity values cannot be reduced. It cannot be enlarged or decreased. (See How to Develop a New Product from Concept to Market?)
5. What is the Opportunity Cost?
Opportunity cost refers to giving up to buy what you want for commodities. Every economist indicated cost as the opportunity cost. The idea of having them is to choose the next best alternative. Factors that constitute the opportunity cost are:
- Effort, and
- Utility. (See How much is 6 Million Pennies?)
6. What is Micro and Macroeconomics?
Economics has two categories: Microeconomics and Macroeconomics.
- Microeconomics – Macroeconomics refers to the decisions made by people and businesses for the allocation of resources and prices by which they exchange commodities. It refers to the taxes, regulations, and government rules.
- Macroeconomics – Macroeconomics shows the style of a country and how integrity affects the economy of a country. It evaluates the whole economy and is not just specific to an individual. (See Different types of Customers in Marketing and Retail)
Choices are driven by scarcity and so scarcity and choice goes together. In addition to people, groups of consumers, businesses, and the government also contribute to this. Understanding what is significant to a person is the most crucial and challenging in scarcity and choice in economics. The scarcity and choice basic to the study of economics which includes all national income and outlays are what a country contributes to society. (See Why is Quantitative Research Important?)