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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

the diagram of the digestive system
Assiatu Reply
allimentary cannel
Ogenrwot
How does twins formed
William Reply
They formed in two ways first when one sperm and one egg are splited by mitosis or two sperm and two eggs join together
Oluwatobi
what is genetics
Josephine Reply
Genetics is the study of heredity
Misack
how does twins formed?
Misack
What is manual
Hassan Reply
discuss biological phenomenon and provide pieces of evidence to show that it was responsible for the formation of eukaryotic organelles
Joseph Reply
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Yousuf Reply
the study of living organisms and their interactions with one another and their environments
AI-Robot
the study of living organisms and their interactions with one another and their environment.
Wine
discuss the biological phenomenon and provide pieces of evidence to show that it was responsible for the formation of eukaryotic organelles in an essay form
Joseph Reply
what is the blood cells
Shaker Reply
list any five characteristics of the blood cells
Shaker
lack electricity and its more savely than electronic microscope because its naturally by using of light
Abdullahi Reply
advantage of electronic microscope is easily and clearly while disadvantage is dangerous because its electronic. advantage of light microscope is savely and naturally by sun while disadvantage is not easily,means its not sharp and not clear
Abdullahi
cell theory state that every organisms composed of one or more cell,cell is the basic unit of life
Abdullahi
is like gone fail us
DENG
cells is the basic structure and functions of all living things
Ramadan
What is classification
ISCONT Reply
is organisms that are similar into groups called tara
Yamosa
in what situation (s) would be the use of a scanning electron microscope be ideal and why?
Kenna Reply
A scanning electron microscope (SEM) is ideal for situations requiring high-resolution imaging of surfaces. It is commonly used in materials science, biology, and geology to examine the topography and composition of samples at a nanoscale level. SEM is particularly useful for studying fine details,
Hilary
cell is the building block of life.
Condoleezza Reply
what is cell divisoin?
Aron Reply
Diversity of living thing
ISCONT
what is cell division
Aron Reply
Cell division is the process by which a single cell divides into two or more daughter cells. It is a fundamental process in all living organisms and is essential for growth, development, and reproduction. Cell division can occur through either mitosis or meiosis.
AI-Robot
What is life?
Allison Reply
life is defined as any system capable of performing functions such as eating, metabolizing,excreting,breathing,moving,Growing,reproducing,and responding to external stimuli.
Mohamed
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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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