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Scarcity And Choice

9 Pages 2156 Words

Chapter 3
Scarcity and Choice: The Economic Problem


What is Economics?

Economics “is the study of how best to use limited means in the pursuit of unlimited ends”.

Our necessities in life are few, but our wants are endless. It is nonsense to assign top priority to everything. One must choose the most desirable alternative among the possibilities permitted by scare resources available, this is referred to as an optimal decision.

( I ) Scarcity, Choice, and Opportunity Cost

The resources available for decision-makers are always scarce (limited), and as result everyone has to make hard decisions. This is the fundamental problem of any economy, the scarcity of available resources.

Resources “are the instruments provided by nature or by people that are used to create goods and services”. The main types of resources are often referred to as land, labor, and capital, they are also called inputs or factors of production. Resources mainly include the following:

• Natural resources include minerals, soil, water and air.
• Labor is a scare resource because of time and skills limitations (the day has only 24 hours, and the number of skilled workers are limited).
• Factories & machines are resources made by people.
• Goods are in limited supply because their production requires fuel, labor, and other scare resources.

All resources are scare, which means that humanity has less of them than we would like. Becasuse of the scarcity in resources, choices must be made among a limited set of possibilities, taking into consideration that a decision to have more of one thing means the less of something else.

In order to increase the output of any product (e.g. cars), this requires the increase in labor, steel, and fuel in automobile production. The result will be the decrease in production of something else.

 Opportunity Cost and Money Cost

Almost everything on earth has its pr...

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