HGov APMacro: Scarcity



Economics is a social science that deals with the fundamental economic problem of scarcity, a condition caused by the combination of seemingly unlimited wants and limited resources. Because of this, people are forced to make choices and decisions about how they will use their resources. There is a significant difference between needs and wants. Individuals have basic essential needs to survive: food, clothing, shelter. Everything else is considered a want, which means not essential to survive. Throughout history, scarcity has prevented people from satisfying all their needs and wants. Scarcity means that people do not and cannot have enough income and time to satisfy their every want; therefore, people are forced to make choices about how they will use their resources. The notion of TINSTAAFL, which stands for There Is No Such Thing As A Free Lunch, is often used to remind us that resources are scarce and that we must make careful economic decisions regarding what, how, and for whom to produce.

Resources are divided into four general categories needed in the production of all goods and services: land, labor, capital, and entrepreneurship. Scarcity means that people do not and cannot have enough income and time to satisfy their every want; therefore, people are forced to make choices about how they will use their resources. By combining trade-offs and opportunity cost is essential in making smart economic decisions. A trade-off is exchanging one thing for another. The cost of a trade-off is what you give up in order to get or do something else. Opportunity cost is the value of the next best alternative given up for the alternative that was chosen.

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