Economic Theory and Concepts - Example

SCARCITY Generally human beings have got unlimited needs and wants. No class or of people who have enough of everything. The resources to satisfy those growing needs are limited. These resources are commonly referred to as factors of production which include land, labour, capital and entrepreneurs. These resources are not enough to satisfy the growing needs and wants which lead to a problem of scarcity concept as an economical problem which is not easily avoidable (Mukherjee S, 2003). Scarcity of resources is having less than the society demand of the goods and services it simply means limited in supply with exception of very few free things like air and sunlight though even the air may be polluted causing air borne diseases. (Mukherjee S, 2003). Scarcity does not choose who to be affected whether rich or poor rather affects everyone at individual levels of wants and needs. This raises another problem now on how to economize the available limited resources with unlimited wants which further raises more questions on what to produce with limited resources, how to produce with limited resources in order to meet the demand for the desired products and services and how to meet different needs of various categories in the entire society (Maunder P, Myers D, Wall N, Miller R L, 2000) Scarcity creates a need to make a choice. Most of these problems faced in the entire society are created by the scarcity of resources. If resources were enough to everyone anyone particular time then there could not have been any economic problem faced by the society at large. Scarcity gives rise to more complexities as more questions on what to produce or how much quantities are needed and by whom comes into question. The alternative choice available brings more problems on how to allocate the scarce resource to the particular needs equitably. This becomes a big problem to the economist. (Mukherjee S, 2003). Different methods of production may be differential from one another by the quantities of resources used to produce them. In order to meet scarcity requirements, efficient and effective method of producing must be employed in order to avoid waste and reduce cost may be by applying the best technology methods. Then another question follows as to whom these goods and services should satisfy. The question of distribution and marketing comes in as to how to distribute these goods and services to different members of the community, like the rich and poor marketers use all kind of languages to show effects of scarcity on the value of commodities and they cleverly use phrases like ’’only while supplies last.’’ Just to show how scarcity is dominant in the society. (Martin E, 2008) Scarcity does not affect only the available resources but even others like time. Individuals find themselves most of the times affected by time constrain. Accordingly to Karau S J and Kelly J R, (2004), time limit was inversely related to the amount of task taken by group performance and the quality of presentation. EFFECTS OF SCARCITY ON IDIVIDUAL Generally scarcity of goods & services affects individuals differently. The rich may go for whatever price of goods selling at the market while the poor shall be forced to make a choice on the most needed commodities going up to the luxurious goods & services. Alternatively they may forego some goods in order to get others which is the opportunity cost incurred. Individuals are guided by the size of their income. Most of the people will always buy what they want especially those that have high income while others make a choice. Individuals are forced to live within their means. Everyone has unlimited wants, education, a good job or even having a good family house. Those needs are only satisfied by what an individual earns at the end of the day. If the income is not able to meet the high demand then one is put into a situation by which choice must be made. A family may necessarily need a car but to another could be more what is very necessary and of priority may be food and clothing. An individual may want land and a car. The choice is made since one could not afford to buy a piece of land and a car at the same time due to limited amount of money available to purchase both assets. All through human being are faced with so many want but resource not enough to meet such demand. Families may choose to pay college fee for their children and do away with other things like purchasing an asset. This is all due to the limited amount of resources available to that person. Prices of commodities may go up forcing individuals to cut on spending. These groups of individuals if prices go beyond their reach, they may be forced to shift to cheaper commodities with may be less quality compared with the high priced commodity. Time is equally scarce to individuals currently majority of the people do many jobs at least to supplement their income earning .In the course of doing so many part time jobs, some are compromised due to luck of adequate time in order to give a quality work.( Karau S.J and Kelly J.R, 2004). In the process of trying to get maximum utility an individual is faced with a budget constrains because the commodities he wants command a price in the market and has limited income. Thus the budget constrains shows the magnitude of scarcity as it refers to an individual. (Maunder P, Myers D, Wall N, Miller R L, 2000). Opportunity cost is the choice made when an individual has to take one option instead of another .what is left not taken or what has been foregone becomes the opportunity cost for that individual and also in ensuring scarce resources are well utilized. (Buchanan M J, 1987). Opportunity cost borne by an individual may not necessarily involve only money but other things which affect all aspect of the lives of human being. One may buy a car and forego to go to college .therefore college becomes the opportunity cost to a car. EFFECTS ON WHOLE ECONOMY. Whole Economy consists of other economic systems apart from the factors of production. It in includes all factors of production and managerial economics which provides logical way of providing business decisions which focuses on the economic forces that ensures proper decisions making are adhered to in order to meet the high demand with limited resources and efficiency is achieved. It deals with demand for goods and services, price of resources, supply of goods and services, cost of production, pricing of goods and services, profitability of the enterprises and firms. Due to the commonly question faced by the economist of what, how and for whom to produce market mechanisms and planning becomes a vital tool in order to deal with scarcity. Economic does not only concentrates on production of goods and services but also ensures that there is growth in the process. This occurs when production capacity of the entiere society increases per capita income. Due to the increased scarcity of other factors this becomes most challenging or does not occur resulting in slow growth in economy. (Mukherjee S, 2003). ECONOMIC THEORY AND CONCEPTS. Theory of demand and supply. The theory of demand states that the quantity of any commodity is inversely related to the commodity’s price holding other things constant, meaning quantity demanded moves in opposite direction with price. When prices of the commodity are high the demand of such items goes down. However price does not determine the demand alone but others like income, tastes and preferences and many other factors hence the definition. Generally determines what good and services one may take at a particular time. If prices of bread suddenly goes up yet the income remain the same then one is forced to reduce the amount consumption in order to be able to pay for it. That means the demand goes down even if the individual person is willing to have the loaf bread or else substitute bread for another thing. (Maunder P, Myers D, Wall N, & Miller R L, 2000). On the hand when the price of goods goes down the opposite happens. The commodities which had less demand more would be demanded. Others may feel they have more money into their pockets and richer than before. Generally supply is determined by the total commodities demanded. Below is a chart representing how demand and supply. Price in $ Demand curve Supply curve 80……..………….. 60 …………………….. 40 …………………………………. Q1 Q2 Q3 Quantity The above chat show that as the price goes up, the quantity demanded becomes less. At Q1, price goes for $80 while at Q2, price goes for $ 60. At Q3, the price goes down completely to $ 40 and this shows demand curve going for more quantities. Reference: Mukherjee S., (2003), Modern Economic Theory, 4th Edition Maunder P., Myers D., and Wall N., Miller R.L, (2000), Economic Explained Revised 3rd Edition. Karau J S., Kelly R.J., (2004), Journal of Experimental Social Psychology, vol. 28 Buchanan J.M., (1987). "Opportunity cost," The New Palgrave, a dictionary of economics, vol 3. Martin E, (2008), Journal of Advertising. Read More