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1.1 Scarcity

4 min readdecember 23, 2022

J

Jeanne Stansak

I

Isabela Padilha Vilela

J

Jeanne Stansak

I

Isabela Padilha Vilela

is the basic problem in economics in which society does not have enough resources to produce whatever everyone needs and wants. Basically, it is unlimited wants and needs vs. limited resources. is faced by all societies and economic systems. 🌏 Since we are faced with , we must make choices about how to allocate and use scarce resources.

Economics is the study of how individuals, firms, and governments deal with . As a result of facing , all members of a society have to make choices in an effort to manage our resources in the most efficient way possible. The choices we make are known as .

(Note: For a good to be scarce it must be both limited and desirable)

Microeconomics vs. Macroeconomics

Microeconomics is the study of how individuals 👥, households 🏠, and firms 🏭 make decisions and allocate resources. For example, whether a high school graduate chooses to go to college or directly into the workforce is a microeconomic decision.

Macroeconomics is the branch of economics that studies the behavior and performance of the entire economy instead of just the smaller economic actors. Macroeconomics deals with issues such as .

Factors of Production

Economists are trying to figure out, within an economy, the following questions: What to produce? How to produce? For whom to produce?

To produce in an economy it is required to recognize the limited supply of the 4 production factors:

  • natural resources and raw materials used to make products. Ex: water, vegetation, oil, minerals, and animals 🏝️
  • the skills and abilities that individuals devote to a task for which they get paid 👷
  • these types of resources can be divided into two types, and .
  • the ability of an individual to coordinate the other categories of resources to invent or produce a good or service. Ex: Bill Gates, Steve Jobs, and Henry Ford 🚗

(Remember: consists of inanimate resources such as money, property, and inventories. consists of human skills and knowledge, which is more difficult to measure, but still considered very important in the economic system)

Organization of Society

In order to decide what to produce and how, different societies have organized themselves based on these factors:

  • Tradition - Tied to the evolution of economics, and it is related to subsistence and tribal life. 📜

  • Command - Consists of the central planning of the economy which differed in different regions of the world depending on the political regime. 🫅

  • Market - Essentially, it is the place in the economy where buyers and sellers perform transactions. The modern market was built from the foundation of the Laissez Faire ("free market") philosophy introduced in 19th century, which emphasizes the importance of and .

  • Mixed- Most countries today will display a mix of command and market structure. This is important because the government does play a role in organizing the economy, though to different degrees across the globe.

Opportunity Costs and Trade-offs

each of the alternative choices that you gave up when making a decision. For example, you walk into the cafeteria for lunch at school and you have the option of pizza, a cheeseburger, or chicken sandwich for lunch. If you choose to have pizza, then the cheeseburger and chicken sandwich are your 🍕

this is the value of the next best alternative when making a choice. Going back to the example of what to have for lunch, if you choose pizza, but get to the front of the line and the last slice of pizza was taken by the kid in front of you, you choose a cheeseburger instead. The cheeseburger is your because it is the next best alternative if your first choice is unavailable 🍔

The table below shows two possible combinations of trucks and cars that can be produced given a set amount of resources. A company or country can move between the two possibilities to best meet their needs. When they move from combo A to combo B, they give up 6 million trucks. That is their for this decision. If they were producing at combo B and moved to combo A, they would give up 8 million cars ().

Production Possibilities

Combo ACombo B
Trucks8 million2 million
Cars2 million 10 million

Key Terms to Review (18)

Capital

: Capital refers to man-made resources used in production such as machinery, equipment, buildings, and technology.

Command Economy

: A command economy is an economic system in which the government has complete control over the production, distribution, and pricing of goods and services.

Entrepreneurship

: Entrepreneurship refers to the process of starting and managing a new business venture. It involves taking risks, organizing resources, and innovating to create value in the market.

Factors of production

: Factors of production refer to the resources used in the production process to create goods and services. These resources include land, labor, capital, and entrepreneurship.

Human Capital

: Human capital refers to the skills, knowledge, education, training, and experience possessed by individuals that contribute to their productivity and economic value. It includes both formal education (such as degrees) and informal learning (such as on-the-job training).

Labor

: Labor refers to the physical and mental effort exerted by individuals in the production of goods and services.

Land

: In economics, land refers not only to physical land but also natural resources like minerals, water bodies, forests, etc., which can be used for economic purposes. It is one of the four factors of production.

Market Economy

: A market economy is an economic system in which decisions regarding production, distribution, and pricing are based on supply and demand. It operates through voluntary exchange between buyers and sellers.

Mixed Economy

: A mixed economy is an economic system that combines elements of both a market economy and a command economy. It allows for private ownership and individual decision-making, but also involves government intervention in certain areas.

Opportunity cost

: Opportunity cost refers to the value of the next best alternative that must be forgone when making a choice between two or more options. It represents what you give up in order to choose something else.

Physical Capital

: Physical capital, also known as "capital goods," refers to the tangible assets used in production, such as machinery, equipment, buildings, and infrastructure. It is one of the factors of production alongside labor and natural resources.

Private Property

: Private property refers to tangible assets or resources owned by individuals or businesses rather than the government. It includes land, buildings, vehicles, and personal belongings.

Production Possibilities Curve

: The production possibilities curve (PPC) represents the different combinations of two goods that an economy can produce given its resources and technology. It shows the trade-offs a society faces when allocating its limited resources between producing different goods.

Property Rights

: Property rights refer to the legal ownership and control individuals or businesses have over resources, assets, or intellectual property. They allow owners to use, transfer, or sell their property as they see fit.

Scarcity

: Scarcity refers to the limited availability of resources in relation to unlimited wants and needs. It means that there are not enough resources to satisfy all human desires.

Trade-offs

: Trade-offs refer to the choices individuals, businesses, and governments make when they give up one thing in order to gain another. It involves sacrificing one option for another due to limited resources.

Tradition-Based Economy

: A tradition-based economy is an economic system where customs, traditions, rituals, and beliefs shape how goods are produced and distributed within a society. Economic activities are often centered around agriculture or crafts passed down from generation to generation.

Unemployment

: Unemployment refers to the state of being without a job, actively seeking employment, and available to work. It is an important economic indicator that measures the percentage of the labor force that is jobless.

1.1 Scarcity

4 min readdecember 23, 2022

J

Jeanne Stansak

I

Isabela Padilha Vilela

J

Jeanne Stansak

I

Isabela Padilha Vilela

is the basic problem in economics in which society does not have enough resources to produce whatever everyone needs and wants. Basically, it is unlimited wants and needs vs. limited resources. is faced by all societies and economic systems. 🌏 Since we are faced with , we must make choices about how to allocate and use scarce resources.

Economics is the study of how individuals, firms, and governments deal with . As a result of facing , all members of a society have to make choices in an effort to manage our resources in the most efficient way possible. The choices we make are known as .

(Note: For a good to be scarce it must be both limited and desirable)

Microeconomics vs. Macroeconomics

Microeconomics is the study of how individuals 👥, households 🏠, and firms 🏭 make decisions and allocate resources. For example, whether a high school graduate chooses to go to college or directly into the workforce is a microeconomic decision.

Macroeconomics is the branch of economics that studies the behavior and performance of the entire economy instead of just the smaller economic actors. Macroeconomics deals with issues such as .

Factors of Production

Economists are trying to figure out, within an economy, the following questions: What to produce? How to produce? For whom to produce?

To produce in an economy it is required to recognize the limited supply of the 4 production factors:

  • natural resources and raw materials used to make products. Ex: water, vegetation, oil, minerals, and animals 🏝️
  • the skills and abilities that individuals devote to a task for which they get paid 👷
  • these types of resources can be divided into two types, and .
  • the ability of an individual to coordinate the other categories of resources to invent or produce a good or service. Ex: Bill Gates, Steve Jobs, and Henry Ford 🚗

(Remember: consists of inanimate resources such as money, property, and inventories. consists of human skills and knowledge, which is more difficult to measure, but still considered very important in the economic system)

Organization of Society

In order to decide what to produce and how, different societies have organized themselves based on these factors:

  • Tradition - Tied to the evolution of economics, and it is related to subsistence and tribal life. 📜

  • Command - Consists of the central planning of the economy which differed in different regions of the world depending on the political regime. 🫅

  • Market - Essentially, it is the place in the economy where buyers and sellers perform transactions. The modern market was built from the foundation of the Laissez Faire ("free market") philosophy introduced in 19th century, which emphasizes the importance of and .

  • Mixed- Most countries today will display a mix of command and market structure. This is important because the government does play a role in organizing the economy, though to different degrees across the globe.

Opportunity Costs and Trade-offs

each of the alternative choices that you gave up when making a decision. For example, you walk into the cafeteria for lunch at school and you have the option of pizza, a cheeseburger, or chicken sandwich for lunch. If you choose to have pizza, then the cheeseburger and chicken sandwich are your 🍕

this is the value of the next best alternative when making a choice. Going back to the example of what to have for lunch, if you choose pizza, but get to the front of the line and the last slice of pizza was taken by the kid in front of you, you choose a cheeseburger instead. The cheeseburger is your because it is the next best alternative if your first choice is unavailable 🍔

The table below shows two possible combinations of trucks and cars that can be produced given a set amount of resources. A company or country can move between the two possibilities to best meet their needs. When they move from combo A to combo B, they give up 6 million trucks. That is their for this decision. If they were producing at combo B and moved to combo A, they would give up 8 million cars ().

Production Possibilities

Combo ACombo B
Trucks8 million2 million
Cars2 million 10 million

Key Terms to Review (18)

Capital

: Capital refers to man-made resources used in production such as machinery, equipment, buildings, and technology.

Command Economy

: A command economy is an economic system in which the government has complete control over the production, distribution, and pricing of goods and services.

Entrepreneurship

: Entrepreneurship refers to the process of starting and managing a new business venture. It involves taking risks, organizing resources, and innovating to create value in the market.

Factors of production

: Factors of production refer to the resources used in the production process to create goods and services. These resources include land, labor, capital, and entrepreneurship.

Human Capital

: Human capital refers to the skills, knowledge, education, training, and experience possessed by individuals that contribute to their productivity and economic value. It includes both formal education (such as degrees) and informal learning (such as on-the-job training).

Labor

: Labor refers to the physical and mental effort exerted by individuals in the production of goods and services.

Land

: In economics, land refers not only to physical land but also natural resources like minerals, water bodies, forests, etc., which can be used for economic purposes. It is one of the four factors of production.

Market Economy

: A market economy is an economic system in which decisions regarding production, distribution, and pricing are based on supply and demand. It operates through voluntary exchange between buyers and sellers.

Mixed Economy

: A mixed economy is an economic system that combines elements of both a market economy and a command economy. It allows for private ownership and individual decision-making, but also involves government intervention in certain areas.

Opportunity cost

: Opportunity cost refers to the value of the next best alternative that must be forgone when making a choice between two or more options. It represents what you give up in order to choose something else.

Physical Capital

: Physical capital, also known as "capital goods," refers to the tangible assets used in production, such as machinery, equipment, buildings, and infrastructure. It is one of the factors of production alongside labor and natural resources.

Private Property

: Private property refers to tangible assets or resources owned by individuals or businesses rather than the government. It includes land, buildings, vehicles, and personal belongings.

Production Possibilities Curve

: The production possibilities curve (PPC) represents the different combinations of two goods that an economy can produce given its resources and technology. It shows the trade-offs a society faces when allocating its limited resources between producing different goods.

Property Rights

: Property rights refer to the legal ownership and control individuals or businesses have over resources, assets, or intellectual property. They allow owners to use, transfer, or sell their property as they see fit.

Scarcity

: Scarcity refers to the limited availability of resources in relation to unlimited wants and needs. It means that there are not enough resources to satisfy all human desires.

Trade-offs

: Trade-offs refer to the choices individuals, businesses, and governments make when they give up one thing in order to gain another. It involves sacrificing one option for another due to limited resources.

Tradition-Based Economy

: A tradition-based economy is an economic system where customs, traditions, rituals, and beliefs shape how goods are produced and distributed within a society. Economic activities are often centered around agriculture or crafts passed down from generation to generation.

Unemployment

: Unemployment refers to the state of being without a job, actively seeking employment, and available to work. It is an important economic indicator that measures the percentage of the labor force that is jobless.


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AP® and SAT® are trademarks registered by the College Board, which is not affiliated with, and does not endorse this website.


© 2024 Fiveable Inc. All rights reserved.

AP® and SAT® are trademarks registered by the College Board, which is not affiliated with, and does not endorse this website.