The Importance Of Scarcity Free Samples †MyAssignmenthelp.com

Question: Discuss about the Importance Of Scarcity. Answer: The basic problem that every economy face is the problem of scarcity. The terms scarcity implies limited availability. In economics, the problem of scarcity arises because of unlimited wants and limited resources to fulfill these wants. People have to make choices. The choices involve trade off and opportunity cost. The existence of scarcity is the foundation of economics. If there is no scarcity and unlimited supply of resources then people can meet their unlimited needs and wants. However, in reality scarcity exists and this leads to three most important question ofeconomics what to produce. How to produce and for whom to produce. The first question addressed is what goods the economy should produce. This means decision needs to be taken regarding chouce of goods. Weight should be given on necessaery goods. The second question is about technique of productions. The scares resources should be used efficienty. This means production should be undertaken in such a way that optimally uses resources without any wastage and yield maximum benefit (Baumol Blinder, 2015). The third question address the targeted group of individual whose needs are to be staisfied. Priority should be given on invidual that constitutes majority of individual. The importance of scarcity is reflectecd in terms of tradeoff and opportunity cost that people face in their everyday life. Tradeoff means sacrifising somethimg to obtain more of some other. Given fixed resources an economy is able to produce only a certain combination of necessary goods. Now, if quantity of some goods increased then it must be accompanied with reduced production of some other goods (Cowen Tabarrok, 2015). This is the opportunity cost of achieving the extra amount of the goods. If there is no contraints in forms of limited resource then this problem would not exists. Scarcity leads to the problem economic efficiency. The scarcity of resources makes is essential to employ resources in the most efficient manner. The objective is allocate resources among production of different goods in a way that there is no possible option left where more of one good is produced without reducing production of some other good, Such efficiency point is called pareto efficient equilibrium points (Galbraith, 2017). Owing to scarcity problem society always tries to use all of its resources to attain highest level of satisfaction. The scaricity thus leads to problems of economic choice. In daily life people faces different choice problem. The resource is the income. With the limited income they have to make a trade off among different choices. Government faces trade off while taking decision regarding public investment (Sowell, 2014). That is whether to allocate more funds on health care, defense or education. The decision depends on current status or need of the economy. Economist often considers free market as the best means of allocating resources. In the free market resources are efficiently allocated in lines with demand without any intervention. Summing up all the things, it can be said that problem of scarcity exists due to limited resources and unlimited wants and plays a vital role in economic decision making. References Baumol, W. J., Blinder, A. S. (2015).Microeconomics: Principles and policy. Cengage Learning. Cowen, T., Tabarrok, A. (2015).Modern principles of economics. Palgrave Macmillan. Galbraith, J. K. (2017).Economics in perspective: A critical history. Princeton University Press. Sowell, T. (2014).Basic economics. Hachette UK.