Every day we are confronted with many messages telling us that we need certain things. However, we do not really need all of these things – many of them are things we merely want. Needs are things we really require to survive, such as basic food, clean water, shelter and basic clothing.
Wants are things we feel might improve our lives, but we do not really need these things to survive. A luxury car, the latest smartphone, concert tickets your favourite artist’s show, designer clothes and accessories are not essential to survive, but are nice to have. We derive satisfaction from consuming these goods, and some goods give us more satisfaction than others. In economics there is a specific term for this feeling of satisfaction – utility.
Have you ever noticed how, once a need or want has been satisfied, there is always something else to take its place? We all would like more food, more love and more free time, because what we have never seems to be enough. Even in wealthy societies, there are people whose wants and needs are never fully satisfied.
Economics then starts from the basis that people’s needs and wants are unlimited.
Scarce resources
Economics is not only concerned with needs and wants, but also how best to satisfy these unlimited needs and wants. To this end, we have to consider how these goods and services are able to satisfy our needs and wants. What we find is that the resources at our disposal to produce the goods and services we need and want are limited. There are simply not have enough resources to produce all the things we need and want.
There are over seven billion people on our planet. Imagine the long list of every single person’s needs and wants. Now imagine trying to satisfy everyone’s needs and wants with the resources available. For example, consider how much food seven billion people need. On earth there is only so much land available that can be used to cultivate the crops to feed everyone. And, to make matters worse, the amount of land that is available is decreasing all the time because it is increasingly being used for other things, such as industry, cities or biofuel crops. Added to the fact that as humans we are never fully satisfied, we are indeed facing a severe problem. It is because of these unlimited needs and wants, on the one hand, and our limited resources, on the other, that the economic problem, the scarcity problem, exists. The study of economics is about how we as a society deal and should deal with this scarcity problem.
Resources include everything in the world around us that we can use to produce goods and services to satisfy our needs and wants. It is usually classified in the following three main groups:
Resources include everything in the world around us that we can use to produce goods and services to satisfy our needs and wants. It is usually classified in the following three main groups:
- Natural resources, such as land, water, minerals, animals and plants
- Human resources, such as entrepreneurs or labour such as economists, builders, architects, accountants, lawyers and cleaners
- Man-made resources such as machines and infrastructure that are available to use to produce goods – in economics we call these resources capital.
Watch the following video on the economic problem: scarce resources
Activity
Do the following activity before you proceed.
Scarcity is a problem in poor countries only.
Think again. The statement is false.
Both poor and rich countries experience scarcity since the problem of scarcity arises because needs and wants are unlimited and the resources (or means) to fulfil these needs and wants are limited. People in rich countries also have wants that are not satisfied. For example, they might want a third car or a bigger house.
The statement is indeed false.
Both poor and rich countries experience scarcity since the problem of scarcity arises because needs and wants are unlimited and the resources (or means) to fulfil these needs and wants are limited. People in rich countries also have wants that are not satisfied. For example, they might want a third car or a bigger house
Scarcity is a problem faced by poor households only.
Think again. The statement is false.
Both poor and rich households experience scarcity since the problem of scarcity arises because needs and wants are unlimited and the resources (or means) to fulfil these wants are limited. Rich people also have wants that are not fully satisfied. For instance, they might want a third car or a bigger house.
The statement is indeed false.
Both poor and rich households experience scarcity since the problem of scarcity arises because needs and wants are unlimited and the resources (or means) to fulfil these wants are limited. Rich people also have wants that are not fully satisfied. For instance, they might want a third car or a bigger house.
The economic problem of scarcity arises because needs and wants are unlimited and the resources (or means) to fulfil these wants are limited.
The statement is indeed true.
We have unlimited needs and wants, on the one hand, and scarce resources, on the other, which leads to scarcity. In economics we study how a society deals and should deal with this scarcity problem.
Think again. The statement is true.
We have unlimited needs and wants, on the one hand, and scarce resources, on the other, which leads to scarcity. In economics we study how a society deals and should deal with this scarcity problem.
An economy's capacity to produce is limited by the quantity and quality of the available resources.
The statement is indeed true.
Resources are required to produce goods and services. The more and better the quality of the resources, the greater the capacity will be to produce goods and services to satisfy needs and wants.
Think again. The statement is true.
Resources are required to produce goods and services. The more and better the quality of the resources, the greater the capacity will be to produce goods and services to satisfy needs and wants.
The economic problem of scarcity can be solved by increasing the productivity of resources.
Think again. The statement is false.
The scarcity problem arises because our needs and wants are unlimited. While an increase in the productivity of our resources increases our capacity to produce more goods and services, it will still not be enough to satisfy all our needs and wants since our needs and wants are unlimited. Our needs and wants will always exceed or outstrip our resources.
The statement is indeed false.
The scarcity problem arises because our needs and wants are unlimited. While an increase in the productivity of our resources increases our capacity to produce more goods and services, it will still not be enough to satisfy all our needs and wants since our needs and wants are unlimited. Our needs and wants will always exceed or outstrip our resources.
An example of a natural resource is:
Water is an example of natural resources, an entrepreneur is an example of human resources and a tractor is an example of man-made resources (capital).
An example of a man-made resource is:
A tractor is an example of man-made resources (capital), water is an example of natural resources and an entrepreneur is an example of human resources.
An example of a human resources is:
An entrepreneur is an example of a human resources, a tractor is an example of man-made resources (capital) and water is an example of natural resources.
I am an expert in economics with a comprehensive understanding of the principles and concepts that govern the allocation of resources to meet human needs and wants. My expertise is grounded in both theoretical knowledge and practical applications, allowing me to provide insights into the complexities of economic systems.
Now, delving into the concepts presented in the provided article:
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Needs vs. Wants: The article distinguishes between needs and wants. Needs are essential for survival, such as basic food, clean water, shelter, and basic clothing. Wants, on the other hand, are desires that enhance our lives but are not necessary for survival, like luxury cars, smartphones, concert tickets, and designer clothes. This differentiation is fundamental in understanding the basis of economic decision-making.
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Utility in Economics: The concept of utility is introduced as the satisfaction derived from consuming goods. In economics, utility refers to the level of satisfaction or pleasure that individuals derive from consuming goods and services. Understanding utility is crucial in analyzing consumer behavior and preferences.
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Unlimited Needs and Wants vs. Limited Resources: The article highlights the fundamental economic problem: unlimited needs and wants versus limited resources. It emphasizes that even in wealthy societies, people's wants and needs are never fully satisfied. This scarcity problem forms the core of economic study, exploring how societies should manage and allocate their limited resources to satisfy unlimited wants and needs.
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Classification of Resources: Resources are classified into three main groups:
- Natural Resources: Land, water, minerals, animals, and plants.
- Human Resources: Entrepreneurs, labor (economists, builders, architects, accountants, lawyers, cleaners).
- Man-made Resources (Capital): Machines and infrastructure used in the production of goods and services.
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Scarcity in Rich and Poor Countries: The article dispels the misconception that scarcity is a problem only faced by poor countries. It emphasizes that both poor and rich countries, as well as households, experience scarcity due to the unlimited nature of needs and wants and the limited availability of resources.
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Capacity to Produce and Productivity: The article mentions that an economy's capacity to produce is limited by the quantity and quality of available resources. Increasing the productivity of resources can enhance the capacity to produce goods and services, but it does not eliminate the scarcity problem.
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Examples of Resources:
- Natural Resource Example: Water
- Man-made Resource Example (Capital): Tractor
- Human Resource Example: Entrepreneur
In conclusion, the article provides a foundational understanding of economic principles, emphasizing the perpetual challenge of addressing unlimited human wants and needs with limited resources. The concepts discussed lay the groundwork for further exploration into economic theories and strategies for resource allocation.
