Economic Theory of Scarcity, Economic Goods and Free Goods - Literature review Example

Economic Concept: Scarcity Name Tutor Institution Course Date Scarcity Introduction Scarcity is a basic economic setback of having apparently unlimited human wants within a world with limited resources. It is a fundamental setback, the gap amid limited or scarce resources and theoretically unlimited wants. The economic theory of scarcity states that societies have inadequate prolific resources to meet all human needs and wants. Therefore, individuals are required to make decisions on the way to efficiently allocate resources so as to fulfill basic needs and other additional wants. Economic goods and free goods According to Cohn (2012) people live within a globe village. The globe’s resources are limited; there are finite amount s of water, land oil and other useful resources. Scarcity implies that economic agents like governments, international agencies, individuals and firms can only get a finite quantity of resources at a time. For example, a family must survive on a set budget since it cannot afford all the things it wants. An organization may want to construct a new industrial plant but lack the resources to undertake this mission. A government may aspire to construct new hospitals but lack the resources to do so. Resources that are scarce are referred to as economic goods (Cohn, 2012). Not all resources are scarce. There is sufficient air in this world for all people to freely breathe at any time. Resources which aren’t scarce are referred to as free goods. In the past years, several goods like food, shelter and water have been free goods, but because the world’s population has increased and production has expanded, free goods have diminished. For instance pollution has compelled local authorities and water companies to use resources to clean up the local environment and water bodies, therefore making water and air to be economic goods. With the damage of the globe’s rainforests and increase in atmospheric contamination, the air people breath in might no longer be a free good(Cohn, 2012). Picture showing free market economy The concept of scarcity According to Arnold (2013) every society faces an economic difficulty, which is the difficulty on the way to best utilize scarce or limited resources. This problem is present because even though the wants and needs of people are limitless, the available resources to fulfill the wants and needs are limited. Only insufficient and finite resources are obtainable to fulfill the desires and needs of all individuals. Then, the basic economic problem faced by business operators and human societies is the manner in which to allocate the limited resources to the provision of numerous services and goods in the economy (Baumol & Blinder, 2012). Scarcity is an essential economic setback, and every economic activity revolves around attempting to resolve this setback. In the scarcity view point, usable goods that are plentiful in supply might not meet the criteria of being termed as economic goods. Water and air, for instance are merely goods because they are readily obtainable and can’t be considered to be limited or scarce. Economic goods are considered to be limited in supply, implying that they can’t at any given period satisfy human demands (Baumol & Blinder, 2012). The fundamental economic problem of scarcity Harvey (2013) argues that resources are limited but human needs and wants are unlimited. This is what leads to the fundamental economic setback and which compels economic agents such as governments and firms to make choices. They must allot the scare resources amid competing uses. Economics studies deals the allotment of resources and the choices made by the economic agents. If scarcity was not present, the concept of economics would not be in existence. Each choice entails a variety of choices and the choices may be graded in regard to the gains to be attained from every alternative. A single choice will the most excellent and a logical economic agent will take up this alternative. The gain forgone from the next most excellent option is referred to as opportunity cost. Opportunity cost is related to the forgoing the next most excellent option, but not merely any option. The actual cost of a decision is usually the closest alternative not selected. Free goods do not have opportunity cost. For instance, no resources are required to be sacrificed when a person breathes in air (Harvey, 2013) Relationship between scarcity, opportunity cost and choice According to (Tucker, 2012) opportunity cost and choice are two essential economic concepts. Considered that resources are finite, consumers and producers are required to make choices amid competing alternatives. Every economic decision entails making a choice. People must select the way to best utilize their efforts and skills, companies must select the manner in which to best utilize their machinery and workers and governments should select how to best utilize taxpayer’s money (Tucker, 2012). Every human society must deal with the fundamental setback of economic scarcity that occurs as a result of the incapability to fulfill he limitless demand of services and goods essential to satisfy human needs and wants with the finite resources at its disposal (Welch & Welch, 2012). In the context of scarcity, human societies are required to determine priorities amid alternative ends and make decision on what services and goods they must produce with their available resources. They are thus needed to make choices which unavoidably entail the trade-off of other options. Choice occurs due to scarcity. Because human wants and needs are finite, it is not possible for individuals or economic agents to be capable to practically satisfy all their needs and wants. Therefore, it becomes inescapable for them to choose amid the numerous limitless needs which to fulfill at any particular time. In economics, it is not merely a conscious resolution but is an unavoidable action that people and economic agents must take (Welch & Welch, 2012). Opportunity cost is viewed as an efficient scheme of understanding the actual worth of people’s choices in regard to the benefits skipped by the decisions they take. Tucker (2015) points out that opportunity cost is a foregone want which has the same cost as the one chosen to meet the desire. Because every resource entailing land, time and money may be put into alternative uses, each action, decision or choice has a linked opportunity cost. Conclusion In the economic view point, scarcity occurs because people have limitless needs but societies have limited resources to meet these needs. It means that economic agents can only be able to only obtain a limited amount of resources at a particular time to meet its unlimited wants. Therefore, individuals and economic agents are required to decide on how to effectively allot resources in order to fulfill their basic needs by making choices amid the different needs and wants. Bibliography Harvey, D. 2013, Economics: principles and Applications, Wiley & Sons, New York. Arnold, A. 2013, Microeconomics, Cengage Learning, Boston. Baumol, J. & Blinder, S. 2012, Microeconomics: Principles and policy, Cengage Learning. Cohn, J. 2012, What Is Scarcity of Resources? Routledge, London. Welch, P, & Welch, F. 2012, Economics: Theory and Practice, Wiley Publishing, New York. Tucker, I. 2015, Survey of Economics, Cengage Learning, Boston. Tucker, I. 2012, Macroeconomics for Today, Cengage Learning, Boston. Read More