Scarcity

Resources are scarce, that it, there is not enough resources such as land, water, oil and food. It is simpler to visualise a household living on a fixed budget. Let’s assume that they may decide on either a holiday or a refrigerator. They cannot have both. Resources which are scarce are called Economic Goods.

However, not all resources are scarce and those which are not are called Free Goods. Traditionally economists said that water and air are free goods but nowadays water is an economic good in most areas and in many parts of the world fresh air is becoming a scarce good.

Infinite Wants

We all have a basic number of needs such as food, water and shelter. Also, we have psychological needs such as the need for self esteem or the need to be loved. These needs describe life at a subsistence level because we all want more than the bare minimum. Therefore, WANTS ARE UNLIMITED, whether it is a bigger house, more exotic holidays, a new car or so on; the list is endless.

 

This brings us to the basic economic problem, how to allocate resources between competing uses. This requires CHOICE, for example, should the government spend £5bn on updating its military and defence or should it spend £5bn on updating its welfare services such as hospitals, public transport, benefits, etc.

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