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Basic Economic Issues: Scarcity and Choice

Most of the problems of economics emanates from the undeniable truth that human wants are unlimited and means to fulfill those wants are limited and they have alternative uses. So, at the heart of economics is the law of scarcity. If infinite quantities of every good could be produced or if human desires were fully satisfied, what would be the consequences? People would not worry about stretching out their limited incomes because they could have everything they wanted; businesses would not need to fret over the cost of labor; government would not need to struggle over taxes or spending, because nobody would care. In such a case of affluence, there would be no economic goods, that is goods that are scarce or limited in supply. All goods would be free, like sand in the desert or seawater at the beach. But no society has reached a utopia of limitless possibilities. Goods are limited while wants seem limitless. Even in developed countries, production is not high enough to meet everyone’s desires. And in developing countries, there are millions of people suffering from hunger.

Given the unlimited wants and limited resources everyone is forced to choose only some of the options. In other words, due to the scarcity of resources and unlimited wants, the problem of choice arises. Therefore, the central economic problem for a society is how to reconcile the conflict between people’s virtually limitless desires for goods and services, and the scarcity of resources (labor, machinery, and raw materials) with which these goods and services can be produced.

In economics, the decision-taker is assumed to be rational. Economic rationality of a decision taker implies the following:

a)   The decision-taker sets out all possible alternatives, which are available to him/her.

b)  S/he evaluates the costs and benefits associated with each of the possible alternatives.

c)   S/he ranks the alternatives in order of preference.

d)   S/he chooses the alternatives highest in the ordering.

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