Scarcity is the fundamental economic problem: limited resources but unlimited wants. It forces individuals, businesses, and governments to make choices about how to allocate resources.
Key Concepts
- Limited Resources
- Land: Natural resources (e.g., water, minerals).
- Labor: Human effort in production.
- Capital: Tools, machinery, and skills.
- Entrepreneurship: Combining resources to create goods/services.
- Unlimited Wants
- Human desires are endless, creating a gap between wants and resources.
- Trade-offs and Opportunity Cost
- Every choice involves giving up the next-best alternative.
- Opportunity cost is the value of what is foregone.
- Three Economic Questions
- What to produce?*
- ow to produce?
- or whom to produce?
Scarcity in Economic Systems
- Market Economy: Decisions made by prices and competition.
- Command Economy: The government allocates resources.
- Mixed Economy: Combines market and government decisions.