Economics
The Economic Problem
The economic problem refers to the fundamental challenge of scarcity and unlimited wants. It arises from the fact that resources are limited while human desires for goods and services are unlimited. As a result, individuals, businesses, and societies must make choices about how to allocate scarce resources to satisfy their needs and wants.
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6 Key excerpts on "The Economic Problem"
eBook - ePub- Cynthia Metcalf, Rhonda Atkinson(Authors)
- 2017(Publication Date)
- Research & Education Association(Publisher)
Most contemporary definitions of economics involve the notions of choice and scarcity and their relationship to one another. Perhaps the earliest of these is by Lionel Robbins in 1935: “Economics is a science which studies human behavior as a relationship between ends and scarce means which have alternative uses.” Virtually all textbooks have definitions that are derived from this definition, though the exact wording differs from author to author.The standard definition of economics is something like this: “Economics is the social science that examines how people choose to use limited or scarce resources to obtain maximum satisfaction of unlimited wants.”Macroeconomics is the study of the economy as a whole and includes topics such as inflation, unemployment, and economic growth. Microeconomics is the study of the individual parts (e.g., households, business firms, and government agencies) that make up the economy. It particularly emphasizes both how these units make decisions and the consequences of these decisions.COMPETENCY 2.1Analyze how scarcity and opportunity cost influence choices about how to allocate resources.Economists believe that human wants are unlimited while the resources to satisfy those needs are limited. Consequently, society is never able to produce enough goods and services to satisfy everybody, or almost anyone, completely. Alternatively, resources are scarce relative to human needs and desires. When resources are limited, the limitation affects prices (the amount of money needed to buy goods, services, or resources). Scarcity
eBook - PDF- Michael Veseth(Author)
- 2014(Publication Date)
- Academic Press(Publisher)
Parti The Economics of Exchange CHAPTER 1 SCARCITY AND CHOICE CHAPTER 2 SPECIALIZATION AND EXCHANGE CHAPTER 3 DEMAND AND SUPPLY: THE MICRO SIDE CHAPTER 4 MARKETS AT WORK 1 This page intentionally left blank 1 Scarcity and Choice This chapter introduces some of the basic problems with which economics deals. Questions that will be answered in this chapter include the following: What are the basic economic problems that face society? How do we deal with these problems? What is the role of economic growth? 3 4 SCARCITY AND CHOICE Economics: the social science that studies the production and distribution of goods and ser-vices in a world of scarce resources Scarcity: the situation that prevails when desires exceed resources Choice: the problem of deciding among several alternatives, not all of which can be obtained at the same time Economics is useful stuff, but economists sometimes seem like a pretty dismal group. Normal in most other respects, economists have the uncomfortable habit of finding dark clouds surrounding every otherwise silver lining. The economists' motto There is no free lunch is not a particularly friendly one. This seeming pessimism has something to do with the way that economists view the world. Given Aladdin's lamp (and the three free wishes that the genie provides) most people would dream only of the luxuries now available. To the economist, however, this seeming abundance is really a problem of scarcity. A world of wants and just three wishes! What dreams to fulfill? What wishes to forego? How to choose? To the economist, even Aladdin's lamp is a problem of scarcity and choice.
eBook - ePubModern Economics
An Introduction
- Jack Harvey, Ernie Jowsey(Authors)
- 2007(Publication Date)
- Bloomsbury Academic(Publisher)
IINTRODUCTION
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CHAPTER1
WHAT ECONOMICS IS ABOUT
LEARNING OBJECTIVES
After studying this chapter you should be able to: •explain the meaning of ‘allocation of scarce resources’; •define opportunity costs; •draw a production possibility curve and use it as an analytical tool; •distinguish between positive economics and normative economics; •explain the nature, scope and limitations of economics.1.1The Economic Problem
Wants and limited means
‘You must cut your coat according to your cloth.’ ‘You can’t get a quart out of a pint pot.’ ‘You can’t make a silk purse out of a sow’s ear.’ How many of our everyday sayings draw attention to the fact that, in comparison with all the things we want, our means of satisfying those wants are quite inadequate! Just think of the extra things we could buy if our incomes were larger – new clothes, new furniture, a better car, foreign travel, a camcorder. The list has no end, for, even if these wants were satisfied, new wants would arise.This, then, is the ‘economic problem’ – unlimited wants, very limited means. And we can never completely overcome the difficulty. But what we can do is to make the most of what we have. In other words, we economise.In order to see more clearly what is meant by ‘economising’, we can study the spending decisions of a housewife. Indeed, this illustration is more appropriate than it may seem at first sight, for ‘economics’ is derived from a Greek word meaning ‘the management of a household’.Our housewife’s task is to make her fixed housekeeping allowance ‘go as far as possible’; in other words, from limited resources she seeks to obtain the maximum satisfaction for the family. Certain goods – those she regards as necessities, such as bread, milk, tea and butter – are purchased in regular quantities almost by habit; but this does not mean that she would not vary her spending on them were there to be any significant change in their prices. Nevertheless, what really lies behind her spending decisions can best be seen if we concentrate on those goods to which she gives frequent consideration. As our housewife walks past the shop windows in the high street, a hundred and one different goods compete for the money in her purse. Should she buy beef or chicken for the Sunday dinner? Peas would be nice – but they are still so dear that cabbage will have to do for one more week. But how everybody would love new potatoes! And they’ve gone down 4p a pound since last week! Yes, she will buy new potatoes instead of old. And so our capable housewife goes on, comparing the prices of different goods and asking herself whether the pleasure her family will obtain from them will be worth their cost – the inroads they make on her limited housekeeping allowance.
eBook - ePubThe Economics of Property and Planning
Future Value
- Graham Squires(Author)
- 2021(Publication Date)
- CRC Press(Publisher)
With regard to for ‘whom’ these goods and services are realised and by which method, different social groupings may benefit or lose depending on particular social cleavages such as wealth and class (lower, middle, upper, under), race, religion, gender, age, and sexuality. Particular minorities and majorities will benefit from the choices made in society – including private decisions by for instance commercial property interests and public interests such as politicians seeking the best combination of public returns for their constituents. Different goods (e.g. the production of merit goods such as education) and how they are produced (e.g. public, private, or a combination) will affect who ultimately receives the good or service. As an example, not all schoolchildren will be able to afford private education and would not be able to receive education.So more broadly, economics is the study of how society decides what, how, and for whom to produce. It is the decisions made by society that are of importance in determining the three questions of what, how, and for whom to produce – and these decisions can often be influenced by the level of ‘wants’ and ‘resources’ available.Resources, wants, and scarcity
At either end of the spectrum in which wants and resources are situated is the idea of ‘Infinite Wants’ on one end, and ‘Scarce Resources’ on the other. Infinite wants hold the notion that people are hard-wired to always want to consume more goods, services, and experiences. Scarce resources in the form of factors of production (Land, Labour, Capital, and Entrepreneurship) restrict the ability for all of these infinite wants to be satisfied completely – as scarcity defines the resources as having limited availability. Due to this mismatch of infinite wants and scarce resources, it is thought in economic terms that a choice will need to be made.Using a property and planning example, a situation can be described where residents will want to live in a property that allows an improved quality of life – such as whether that is a better location, better school catchment, areas with low crime, commutable to suitable employment, and near to recreation space. However, these wants are curtailed due to the scarcity of resources, for instance, there is only finite (or even unique) land available for desirable locations, there are a limited number of available schools, not all locations are crime (or fear of crime) free, the commute time to work will have a limit, and there is only a finite amount of land available for recreation. As a result, this housing example demonstrates that the wants will not be completely satisfied given the scarce resources (and factors of production), and a compromise and choice will have to be made. This idea of choice can be aggregated to a national scale and demonstrate that not all of a nation’s inhabitants will be satisfied.
eBook - PDF- Michael Veseth(Author)
- 2014(Publication Date)
- Academic Press(Publisher)
TOOLS AND PROBLEMS MACROECONOMIC PROBLEMS 5 SUPPLY AND DEMAND 27 THE PROBLEM OF UNEMPLOYMENT 57 UNDERSTANDING INFLATION 81 1 MACROECONOMIC PROBLEMS Preview What is economics? What is macroeconomics? What are our national economic problems? What are our national economic goals? Have we been successful in achieving those goals? How have our economic problems changed over the past decades? 6 MACROECONOMIC PROBLEMS ANY OF our most difficult individual and national problems are economic problems. To understand the world and make intelligent choices, therefore, requires that we understand something of economics. It is astounding to consider how much economic events have come to monopolize our time and influence our lives. The federal government was once mostly a referee (making and enforcing criminal and civil law) and a guardian (protecting us from foreign powers). Now Congress and the President seem to spend most of their time fighting economic fires—battling inflation, unemploy-ment, and budget deficits. Newspapers used to count on stories of fires, mur-ders, and kidnappings to increase circulation. Now taxes and interest rates make the headlines and sell papers. Businesses that once were preoccupied with the difficult matter of mak-ing a profit, now worry, as well, about investment tax credits, gross national product, and exchange-rate policies. People who, 10 years ago, did not know the difference between prime rib and prime rate, now think more about the latter than the former. They know that they must master some pretty sophis-ticated economics if they are to make even simple personal and business deci-sions with confidence. Economics is important stuff and this book is designed to help you under-stand economic theories, policies, and news. It is the goal of this text to increase your EQ (Economics Quotient) by leading you through a discussion of economic theory, the nature of our current ills, and an analysis of some of the frequently prescribed cures.
- Scott Dittloff(Author)
- 2018(Publication Date)
- Research & Education Association(Publisher)
CHAPTER 3 ECONOMICSINTRODUCTION TO ECONOMICSWhat Is Economics?Economics is “the study of how a society allocates scarce resources amidst unlimited human wants.” As such, the concepts of scarcity and human wants are fundamentally important to the study of economics.Macroeconomics is the study of the economy as a whole. Some of the topics considered include inflation, unemployment, and economic growth.Microeconomics is the study of the individual parts that make up the economy. The parts include households, business firms, and government agencies, and particular emphasis is placed on how these units make decisions and the consequences of these decisions.Economic AnalysisEconomic Theory —An economic theory is an explanation of why certain economic phenomena occur. For example, there are theories explaining the rate of inflation, how many hours people choose to work, and the amount of goods and services the U.S. will import. Stripped down to essentials, a theory is a set of statements about cause-and-effect relationships in the economy.Models —A model is an abstract replica of reality and is the formal statement of a theory. The best models retain the essence of the reality, but do away with extraneous details. Virtually all economic analysis is done by first constructing a model of the situation the economist wants to analyze. The reason for this is because human beings are incapable of fully understanding reality. It is too complex for the human mind. Models, because they avoid many of the messier details of reality, can be comprehended, but good models are always “unrealistic.”It would not be inaccurate to say that economists do not analyze the economy; they analyze models of the economy. Almost every prediction that an economist makes, e.g., the impact of changes in the money supply on interest rates, the effect of the unemployment rate on the rate of inflation, the effect of increased competition in an industry on profits, is based on a model.
Index pages curate the most relevant extracts from our library of academic textbooks. They’ve been created using an in-house natural language model (NLM), each adding context and meaning to key research topics.
