THE ECONOMIC PROBLEM OF SCARCITY AND CHOICEIntroduction1. What is ScarcityAccording to Cunningham and William (1915 -1919), scarcity simply means that people require more goods and services than demand can provide. The two further state that scarcity occurs in a situation where the quantity of the goods or resources demanded exceeds the quantity supplied. According to Robert, on his article entitled Scarcity and Choice, when this occurs, there are price increases or similar increases in the cost of production leading to an increase in monetary value of goods.
Robert also adds that the increase in the monetary value carries with it a negative impact on the economy. This impact is felt in terms of reducing employment opportunities and the frequent use of the opportunity cost theory by individuals.2. What is ChoiceChoice can be referred to as the list of option or options that a person gives up for something else. A good example might be if you gave up the option of watching a television program in order to study thus the cost of studying can be compared to the relaxation you would have attained from watching the movie. According to Ashley and William (1914), people normally make choices by comparing the benefits of one option with another option or by comparing all the options that are available and then choosing the one that they feel has the highest benefit to them.
Thus, all the other options are sacrificed. Choice is important in economics because it determines the scarcity of goods and services. This is because if everyone would choose one type of good or service then that good or service would be limited due to the high demand and low supply.3. What is opportunity CostAbbott (1925) states clearly that opportunity costs can be termed as those choices that we either have to give up or to forgo for other choices that we feel are better. This is the process that occurs while making decisions and deals with arranging our needs in order of preferences in consideration to our limited resources. As also stated by Cunningham and William (1915 -1919), it is opportunity costs that normally lead to matters pertaining to scarcity and choice.
It is universal that the available resources are insufficient to satisfy people’s needs thus the main economic problem is the appropriate use of limited resources to produce the basic goods and necessary for human life.The Theory of Scarcity and ChoiceAccording to Ashley, William (1924), Scarcity provides room for choice. People therefore just have to choose which of their needs they will satisfy and which ones will be left unsatisfied. When individuals or the society as a whole, choose more of something, scarcity ensures that there is little consumption of another thins. It is for this reason that Abbott (1925) reasons that economics is sometimes called the study of scarcity. This is because economic activities can never exist if scarcity never forced people to make choices.Resources used in production1.
LandLand is a natural resource which according to the bible, is given to us by God. There are other gifts of nature such as air, minerals and water that are useful for the purposes of producing goods and services to try and satisfy the diverse basic needs of man.2.
EntrepreneursThese are the resources that organize other resources such as land, labor and capital. The entrepreneurs are the people who set up a production industry by combining all factors of production in order to produce a good or service. As — states, while the laborers are paid wages and salaries for the work they do, an entrepreneur is awarded for his work through profits gained from the industry (Cunningham and William 1915 -1919).3. LaborAshley and William (1914) state that labor is the time and physical or mental effort devoted by a group of people or a person in order to produce goods and services. Labor is an important resource without which there would exist no production.
Labor is mainly supplied through machines and manpower.4. CapitalRobert Schenk (n.d) states that capital goods are the goods developed by producers and are useful purposely for the production of other goods and services.
Capital can include such goods and services like buildings, vehicles, factories and power plants. Machinery and other forms of Equipment can also be termed as a capital.The economic problems of Scarcity and Choice1. Limited choicesCunningham and William (1915 -1919) also state in a very clear manner that where there is scarcity and choice, costs must be involved. Because of this, Scarcity limits people because of limited income and yet very many need. Because of the high costs and low income, we might not satisfy all our wants as we please and thus we make choices based on the theory of opportunity costs.
2. Limited employment opportunitiesDue to the fact that there exists only a limited number and quantity of resources, the number of employment opportunities also becomes limited. The scarce amount of resources therefore require only a small percentage of manpower to control.
This leaves many people unemployed. It also automatically ensures that only a minimum amount of goods and services can be produced. This hinders economic growth (Abbott 1925).3. Limited investment opportunitiesAccording to Cunningham and William (1915 -1919), investment is the process of using resources to produce new capital whereas he also terms Capital as any accumulation of previous investments. In this light, Ashley and William (1924) also state that due to the limited nature of resources, the opportunity cost of every capital investment is normally forgone. This makes chances of investing slim and ensures low employment and production rate thus leading to a stall in the economic growth.4.
Decrease in economic growthAccording to Robert Schenk (n.d), in his web material named Scarcity and Choice, Economic growth is termed simply as the expansion in production. He also adds that economic growth can also be termed as an increase in the total output of the economy which occurs when a society acquires new resources, or uses technology to produce more goods and services using existing resources. This expansion in production under normal circumstances is usually caused by technological progress and Capital accumulation.
Abbott (1925) says that technological growth is the development of new methods to produce better goods or services whereas he refers to Capital accumulation as the growth in a society’s capital resources. Cunningham and William (1915 -1919) adds to this that if any of these two increases, there exists a more rapid expansion and growth of the economy. However, when there is a decrease in the means for technological advancement and also a decrease in the economic growth due to scarcity, a decline in economic growth occurs.ConclusionIn conclusion, I can state that choice is brought about by the existence of scarce available resources.
This leads all people around the world to scramble for the scarce resources and to rely on opportunity costs. Because of the high demand and low supply, prices for even the essential commodities have inflated and made economies go down as a result. Thus, as Ashley and William (1924) say, the economic problems brought about due to scarcity and choices have existed with mankind from times immemorial and will escalate as the human population increases. What needs to be done is to find ways of getting alternative resources so that the current economic crises are prevented. ReferencesAbbott, W. C. (1925) The Expansion of Europe; a Social and Political History of the Modern World, (2 vols.), London.
William J, A. (1924) An Introduction to English Economic History and Theory (2 vols.), London and New York, 1888–1893; The Economic Organization of England, London and New York, 1914; 8th ed.Cunningham, & William.
(1915 -1919) The Growth of English Industry and Commerce in Modern Times (6th ed) CambrigeSchenk R., Scarcity and Choice. (n.d). <http://www.ScarcityNChoice.html> 10 April 2009