Question grey Finance & Economics
Economic problem of scarcity and choice
explain the basic economic problem of scarcity and choice that all economies face.
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Answer Internal Staff
Robbins (1935) defines economics as the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses. This definition of economics therefore involves the inter-relationship between scarcity, choice and opportunity cost. Scarcity is the central economic problem that all economies face. That is, the excess of human wants over what can actually be produced to fulfill these wants. This can be due to insufficient resources, goods, and/or abilities. For example, some vegetables and fruits are scarce in markets sometimes because those certain vegetables and fruits are seasonal and grow only at certain times of the year. Because of scarcity, choices have to be made by consumers, governments and businesses. Figuring out ways to make best use of scarce resources or find alternatives is fundamental to economics.
The next highest valued alternative that is given up when a choice is made is referred to as the opportunity cost. An example of the opportunity cost an individual might face due to limited resources, land in this particular instance, is whereby an individual owns 100 acres of farmland. If he/she decides to rent the farmland to a neighbour, then their opportunity cost would be the income foregone by not planting any crops like corn, wheat etc. on the farm. Governments also face opportunity costs due to scarce resources. For example, the opportunity cost of the government spending £15 billion on investment on the National Health Service (NHS) might be that £15 billion less is available for spending on improvements to the transport network.
ReferencesRobbins, L. (1935) An essay on the nature and significance of economic science, 2nd ed, London: Macmillan