THE KEY ECONOMIC PROBLEM: SCARCITY AND CHOICE

ABSTRACT

Subject of microeconomics is mainly concerned with limits. To understand how to cope with these limits, society analyses the allocation of scarce resources. Scarcity influences on the choices made by consumers, businesses and governments.

Keywords: microeconomics, scarcity, choice, resources, society, goods and services.

Scarcity implies that there are limited resources to satisfy unlimited human wants and needs. A resource is considered scarce if it has a cost, and these resources can come from land, human services, or capital. The cost of different resources can be used to determine the scarcity. If a commodity is expensive for example, it can imply that it exists in limited amounts or the costs of producing it are high. Scarcity also varies from place to place. A person who is living in a desert, for instance, faces scarcity of water while that may not be the case for another person living in a wetland.

There is the opportunity to give advice consumers how to best allocate their limited incomes to the various goods and services available for purchase. It also can be predicted how workers will allocate their working time, or time to certain type of job instead of another. And in each of these cases the phenomenon of scarcity exists as one or several types scarcity of recourse and choices, caused by this.

Since are live in a world of scarcity, a society can produce only a small portion of goods and services that its people want. Therefore, scarcity of resources gives rise to the fundamental economic problem of choice. As a society cannot produce enough goods and services to satisfy all the wants of its people, it has to make choices.

A decision to produce one good requires a decision to produce less of some other good. So, choice involves sacrifice. Thus, every society is faced with the basic problem of deciding what it is willing to sacrifice to produce the goods it wants the most.

The resources are scarce; the society has to make a number of choices.

The problem of choice arises on account of the pressure of three interrelated facts: human wants are unlimited, means required to satisfy these wants are limited and means are capable of being put to alternative uses. There would be no problem if the scarce means had only a single use. However, in reality, these scarce means have alternative uses. Therefore, there ar main categories of choices that a society must make:  How to produce these goods and services? For whom to product them? How efficiently are the resources being utilized? Is the economy growing?

All these central problems of an economy are interrelated and interdependent. They arise from the fundamental economic problems of scarcity of means and multiplicity of ends which lead to the problem of choice or economizing of resources.

The phenomenon of scarcity is often used in marketing as a stimulation for consumer to purchase. This makes sense in a traditional economic way, where less supply and more demand drive up prices. It also makes sense on an intuitive level.

There are generally two types of scarcity you can use to increase sales:

Quantity-related scarcity (e.g., “Two seats left at this price!”);

Time-related scarcity (e.g., “Last day to buy!”).

Example is Amazon online-shop. They also use quantity-related scarcity: “Only 2 left in stock”. This, in combination with the urgency play for shipping (“Want it tomorrow?”), is an effective way of getting me to take action and avoid the loss of that rare book I had my eye on.

Any choice is bound to be limited. The principle of scarcity states that it becomes easier to convince a person if the resource is limited. Scarcity is a fundamental principle in the economy, it determines supply and demand. If the supply decreases, people are willing to pay more because resources are limited. Conversely, if the offer is large, people are willing to pay less.

Organizations and vendors use the scarcity influence principle to increase demand. They make the most profit at the intersection of the supply and demand curve. Organizations often underestimate information about the available quantity of products. They inform consumers that jackets, cars, or other goods are limited. And consumers have a "hunger" for a limited product, so they are more likely to decide to buy it, and perhaps even at a higher price.

The main reason for the high efficiency of the influence of the deficit principle is the fact that it causes motivation, making consumers fear the loss of benefits. Scarcity implies rarity, high quality and high demand, and all these factors increase resource requirements.

References:

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