The Economic Concept of Scarcity and Choice

Scarcity and Choice

If the resources available are not enough to produce goods and services to satisfy all the wants then they are said to be scarce. As a result, individuals and society cannot have all the things that they want. Since resources are limited, choices have to be made. The choice to satisfy one want implies others are forgone. Individuals have to make choices e.g. consumers with their limited income and unlimited wants have to choose how they spend their income. An individual may choose to buy a bicycle to commute to work instead of buying a car if they do not have enough money to buy the car. In this case, they are foregoing a car and choose a bicycle due to the scarcity of resources.

Based on the above foreground information about scarcity and choice, scarcity can be defined as the characteristic of economic resources that makes them to be finite in nature. It refers to limited availability of economic resources. On the other hand, choice can be defined as the decisions that people make regarding the use or exchange of scarce economic resources.

When a resource is plentiful, like air, people do not spend much time making choices about them. That is why air is not considered as an economic resource. On the other hand, time is a scarce resource that requires choices on how to use. Managers and workers decide how many hours to work, how many minutes to spend in a meeting, and how long to run a project. Human resources and skills are also in limited supply, and businesses make clear choices regarding who, how, and when to hire new employees.

Importance of Scarcity

Although scarcity may deny an individual the opportunity to access all the goods and services they need, it may also have a positive economic benefit for individuals and society. Some of the benefits of the scarcity of resources include:

  • Makes people to work hard: Since economic resources are scarce, people are pushed to increase their efforts in activities that will increase those resources. For instance, an employee is forced to work extra hard and smart to meet deadlines. If time was enough, an employee would be lazy and less productive.
  • Stimulates usage of available resources: Scarcity allows individuals and businesses to utilize available resources more efficiently. If resources were abundant, people may not have utilized available resources as much as they should. Perhaps people are polluting the air, water and soil because they think those natural resources are in plenty supply.
  • Increases a person’s focus on their expenses and avoid misuse of resources
  • Allows prioritization of choices to ensure that households and individuals focus on the most important things.
  • It boosts creativity by making people to be more open-minded and seek new information or new ways of doing things in a better way.

Opportunity Cost refers to the value of benefit expected from the best second alternative forgone. Scarcity and choice lead to opportunity cost. It is based on the fact that resources being scarce have competing alternative uses. The choice to satisfy one alternative means that another is forgone. The value of the second best forgone alternative is the opportunity cost.

Leave a Reply

Your email address will not be published. Required fields are marked *