47 Understanding Economics and Scarcity
What you’ll learn to do: explain what economics is and explain why it is important
Most people think of money when they think of economics. While that is certainly one aspect of it, economics is about a lot more than money. Really, it is a study about decision-making and choices, and how scarcity and competition lead people to behave.
Watch It
Watch this video for a brief overview of economics. You’ll often encounter videos like this, enclosed inside of “Watch It” boxes, in this course. These are highly recommended and serve as wonderful tools to review and enhance your understanding of the concepts presented. Even if you feel like you understand the material in the reading, it is worthwhile to watch the videos.
In order to understand economics, it’s important to master a set of key definitions and understand how they interconnect. These concepts will be used many times throughout the course. At the most basic level:
- Scarcity means that there are never enough resources to satisfy all human wants
- Economics is the study of the trade-offs and choices that we make, given the fact of scarcity
- Opportunity cost is what we give up when we choose one thing over another
In this section, we will spend more time with these definitions, and understand how they’re used in the context of this discipline.
Learning Objectives
- Describe scarcity and explain its economic impact
- Describe factors of production
Scarcity
The resources that we value—time, money, labor, tools, land, and raw materials—exist in limited supply. There are simply never enough resources to meet all our needs and desires. This condition is known as scarcity.
At any moment in time, there is a finite amount of resources available. Even when the number of resources is very large, it’s limited. For example, according to the U.S. Bureau of Labor Statistics, in 2016, the labor force in the United States contained more than 158 million workers—that’s a lot, but it’s not infinite. Similarly, the total area of the United States is 3,794,101 square miles—an impressive amount of acreage, but not endless. Because these resources are limited, so are the numbers of goods and services we can 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.
Try It
Throughout the course, you will find these “Try It” boxes with questions to help you check your understanding and apply the concepts from the reading. Choose an answer, then select “check answer” to get feedback about how you did.
Economics
When faced with limited resources, we have to make choices. Again, economics is the study of how humans make choices under conditions of scarcity. These decisions can be made by individuals, families, businesses, or societies.
Let’s consider a few decisions that we make based on limited resources. Take the following:
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