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By the end of this section, you will be able to:

  • Discuss the importance of studying economics
  • Explain the relationship between production and division of labor
  • Evaluate the significance of scarcity

Economics is the study of how humans make decisions in the face of scarcity. These can be individual decisions, family decisions, business decisions or societal decisions. If you look around carefully, you will see that scarcity is a fact of life. Scarcity means that human wants for goods, services and resources exceed what is available. Resources, such as labor, tools, land, and raw materials are necessary to produce the goods and services we want but they exist in limited supply. Of course, the ultimate scarce resource is time- everyone, rich or poor, has just 24 hours in the day to try to acquire the goods they want. At any point in time, there is only a finite amount of resources available.

Think about it this way: In 2015 the labor force in the United States contained over 158.6 million workers, according to the U.S. Bureau of Labor Statistics. Similarly, the total area of the United States is 3,794,101 square miles. These are large numbers for such crucial resources, however, they are limited. Because these resources are limited, so are the numbers of goods and services we produce with them. Combine this with the fact that human wants seem to be virtually infinite, and you can see why scarcity is a problem.

Scarcity of resources

The image is a photograph of two people who are homeless and sleeping on public city benches.
Homeless people are a stark reminder that scarcity of resources is real. (Credit: “daveynin”/Flickr Creative Commons)

If you still do not believe that scarcity is a problem, consider the following: Does everyone need food to eat? Does everyone need a decent place to live? Does everyone have access to healthcare? In every country in the world, there are people who are hungry, homeless (for example, those who call park benches their beds, as shown in [link] ), and in need of healthcare, just to focus on a few critical goods and services. Why is this the case? It is because of scarcity. Let’s delve into the concept of scarcity a little deeper, because it is crucial to understanding economics.

The problem of scarcity

Think about all the things you consume: food, shelter, clothing, transportation, healthcare, and entertainment. How do you acquire those items? You do not produce them yourself. You buy them. How do you afford the things you buy? You work for pay. Or if you do not, someone else does on your behalf. Yet most of us never have enough to buy all the things we want. This is because of scarcity. So how do we solve it?

Visit this website to read about how the United States is dealing with scarcity in resources.

Every society, at every level, must make choices about how to use its resources. Families must decide whether to spend their money on a new car or a fancy vacation. Towns must choose whether to put more of the budget into police and fire protection or into the school system. Nations must decide whether to devote more funds to national defense or to protecting the environment. In most cases, there just isn’t enough money in the budget to do everything. So why do we not each just produce all of the things we consume? The simple answer is most of us do not know how, but that is not the main reason. (When you study economics, you will discover that the obvious choice is not always the right answer—or at least the complete answer. Studying economics teaches you to think in a different of way.) Think back to pioneer days, when individuals knew how to do so much more than we do today, from building their homes, to growing their crops, to hunting for food, to repairing their equipment. Most of us do not know how to do all—or any—of those things. It is not because we could not learn. Rather, we do not have to. The reason why is something called the division and specialization of labor , a production innovation first put forth by Adam Smith , [link] , in his book, The Wealth of Nations .

Questions & Answers

this means that the demand curve have negative relationship with the price ..which means that when high price low demand of the product and vice versa so higher price will shirnk the demand of product
Ahsan Reply
a person has 60birr to buy two commodities,x and y the price of x is four birr unit the price of y is two birr unit his utility functio given by u=xy+2x determine the budget equation
Mohammed Reply
What are the various reasons for the Federal Reserve to increase the fed rates?
AMEEN Reply
What is unemployment
Mijash Reply
Unemployment is a term used to describe people who do not hold a paying job
JASON
what are the causes of unemployment
evans
unemployment refer to the situation in which people searching job but they have no. it also refers in which marginal productivity in zero.
Ramu
Causes of unemployment are: 1: Over Population 2: Break down of the family system 3: Rural/Urban Migration
Umar
unemployment simply means, in the situation where by people are looking for a job and their could achieve it.
Faruk
suppose you're the economist of ethiopia; when the country is face high rate of inflation what you recommend as one economist?
Roba Reply
if consumer spend all their incomes on consumption what does it mean?
Roba
if the government spends more of its revenue on development infrastructure from the budget it have and lower tax collection the budget deficit will run why?
Roba
because tax is less than revenue
Bhat
what is demand
Sunday Reply
Demand is the quantity of goods and services that consumers are willing and able to purchase at various prices over a given period of time
adu
the total value of goods and services produced by a coutry in it's own territorial area( mainly in a year) is called GDP
fareeha Reply
GDP- the total value of goods produced and services provided in a country during one year.
fareeha
What is the formula for propensity to save
Zubair
there is no formula for propensity to save but it has a two types one is average propensity to save and marginal propensity to save where Apc is equal to saving divide by income and mpc is equal to change in saving due change in income
Bhat
yes ooo
Sunday
yes
Ahmed
okay
kawu
what is time in economics?
Sunday
what is gross domestic product
Moonga Reply
what is macroeconomics
Dickison Reply
what is macroeconomics
Majid Reply
what is macroeconomic analysis
Deogratius Reply
Macroeconomics is a branch of the economics that studies how the aggregate economy behaves. In macroeconomics, a variety of economy-wide phenomena is thoroughly examined such as inflation, price levels, rate of growth, national income, gross domestic product (GDP) and changes in unemployment Read m
wasay
Macroeconomics is a branch of the economics that studies how the aggregate economy behaves. In macroeconomics, a variety of economy-wide phenomena is thoroughly examined such as inflation, price levels, rate of growth, national income, gross domestic product (GDP) and changes in unemployment
wasay
what is wage in economics?
Sunday
what is economic
Wajeed Reply
Economics is the social science that studies the production, distribution, and consumption of goods and services. Economics focuses on the behaviour and interactions of economic agents and how economies work. 
ninad
Economics is the brench of science that deals with the study of human behavior as it related to end or scare means which have alternative used.
Jimmy
Economics is a science that studies human behavior as a relationship between ends and scarce means which have alternative uses
Don
Economics as a social science does not have a definite definition, because it has been defined by many economist the most appropriate one was the one defined by Lord Lionel Robbin in 1932. He defined economics as a social science which study human behavior as a relationship between end and scare m..
Ernest
what is inflation
Junaid Reply
Inflation is simply a situation in an economy where there is a persistent rise or increase in the prices of goods and services in a particular year(say current year)
JERRY
It can still be defined as a situation in an economy where there's a persistent fall in the value of money
JERRY
it is the persistent rise in the general price of goods and services in an economy leading to the fall in the values of money
Muafue
It could mean the central bank has a deficit in reserve unable to cope with low export and exit of foreign investments.
Wong
inflation is the general increase in a commodity with in a country.
Jimmy
Mr Fallah please take the definition again that one is not clear
Muafue
the persistence in general price of commodities
ezechy
The persistence rise in the general price level
Muafue
The persistence rise in general price of commodities
Delhill
Inflation is the persistent increase in price of goods and services over a given period of time.
Ernest
what is willingness
Bilal Reply
Is a person Able,Capable and Anxious to something
Muafue
Is when a person is able,capable and Anxious to do something
Muafue
thanks sir g.
Bilal
u are welcome
Muafue
where you from
Bilal
Cameroon
Muafue
And you
Muafue
Pakistan
Bilal
How far are you in Education
Muafue
who about my question What is MPC
sabawoon
is marginal propensity to consume
Muafue
a little more
sabawoon
sorry muafue sir you are little bit wrong about willingness *willingness reffers how much wants . it could be wants for payment or wants for something to do.
Masadaq
MPC reffers *How much want to consume*.
Masadaq
MPC is Marginal Propensity to Consume. MPC is proportion of additional spent on consumption.
Bon
MPC is Marginal Propensity to Consume. MPC is the proportion of additional income spent on consumption.
Bon
What is difference between GNP and GDP?
Zahid
GNP is gross national product. In calculating GNP we include net national income from abroad while GDP is gross domestic product and in calculating it we use on expenditure, income and output from within the country. My name is JERRY NGONDA from Cameron
JERRY
GNP.the total value of good $service currently produce w a given period of time by domestic owner GNP=NFI+GDP:GDP is a market value of final good $service currently produce in a given period of time w in a country boundery or territors.its take produce currently $etc
tade
yes.no suggestions
tade
good Tade Feyera
Masadaq
Tade Feyera can you send me your whatsap contact number.
Masadaq
when spending by the federal government exceeds net taxes?
stefany Reply
explain the difference between macroeconomics and microeconomics
Rahmo
Macroeconomics is the study of economics at the aggregate level while Micro is at the individual level.
Umar
Both indifference curve and isoquant do not intersect TRUE OR FALSE and justify your statement
John
what is long run and short run period
Kennedy

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Source:  OpenStax, Macroeconomics. OpenStax CNX. Jun 16, 2014 Download for free at http://legacy.cnx.org/content/col11626/1.10
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