A Level Economics
A Level Economics:
An Introduction to Scarcity
Notes from the video ‘Diffusion Academy| A Level Economics |Introduction to Scarcity‘ :
The central economic problem is scarcity.
Scarcity is the problem of having seemingly unlimited human wants in a world with limited resources.
There are four main economic resources:
Firstly, land or naturally occurring resources like forests or minerals
Secondly, labour or all forms of human input
Thirdly, capital or inputs into production like factories and machines
And lastly, enterprise which is the human resources that take risks and innovate to bring together land, labour and capital to secure production.
All of these resources are finite.
Because of scarcity, a society cannot have all it wants and has to make choices about what, how and for whom to produce.
Any choice taken will incur an opportunity cost, or the next best alternative foregone when a decision is made. This problem affects the individuals, firms and even governments.
An individual has limited income but unlimited wants. Individual’s objective is to maximise his or her satisfaction. To do so, he or she must decide how much to spend, save and allocate his or her spending between different wants or needs.
Similarly, a firm has limited resources but has unlimited production possibilities. A firm’s objective is to maximise profits. To do so, it must decide what type and how much of a good or service it must produce.
Lastly, governments have limited economic resources and any good government would aim to maximise societal welfare. And to do so, governments must decide how to allocate their resources to provide maximum welfare for their citizens.