Economics Essay: Understanding Scarcity & Decision Making Process

This essay delves into the fundamental economic problem of scarcity, which arises from unlimited wants and limited resources, forcing individuals and economies to make choices involving trade-offs and opportunity costs. It addresses the three core questions of economics: what to produce, how to produce, and for whom to produce, emphasizing the importance of efficient resource allocation. The essay further explores how scarcity leads to the concept of Pareto efficiency and the need for economic choices in daily life, such as government decisions on public investment. It concludes by highlighting the role of free markets in efficient resource allocation and emphasizing the vital role of scarcity in economic decision-making. Desklib provides access to similar essays and study resources for students.

Running Head: ECONOMICS FOR BUSINESS
Economics for Business
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1ECONOMICS FOR BUSINESS
The basic problem that every economy face is the problem of scarcity. The terms scarcity
implies limited availability. In economics, the problem of scarcity arises because of unlimited
wants and limited resources to fulfill these wants. People have to make choices. The choices
involve trade off and opportunity cost.
The existence of scarcity is the foundation of economics. If there is no scarcity and
unlimited supply of resources then people can meet their unlimited needs and wants. However, in
reality scarcity exists and this leads to three most important question of economics what to
produce. How to produce and for whom to produce. The first question addressed is what goods
the economy should produce. This means decision needs to be taken regarding chouce of goods.
Weight should be given on necessaery goods. The second question is about technique of
productions. The scares resources should be used efficienty. This means production should be
undertaken in such a way that optimally uses resources without any wastage and yield maximum
benefit (Baumol & Blinder, 2015). The third question address the targeted group of individual
whose needs are to be staisfied. Priority should be given on invidual that constitutes majority of
individual.
The importance of scarcity is reflectecd in terms of tradeoff and opportunity cost that
people face in their everyday life. Tradeoff means sacrifising somethimg to obtain more of some
other. Given fixed resources an economy is able to produce only a certain combination of
necessary goods. Now, if quantity of some goods increased then it must be accompanied with
reduced production of some other goods (Cowen & Tabarrok, 2015). This is the opportunity cost
of achieving the extra amount of the goods. If there is no contraints in forms of limited resource
then this problem would not exists.

2ECONOMICS FOR BUSINESS
Scarcity leads to the problem economic efficiency. The scarcity of resources makes is
essential to employ resources in the most efficient manner. The objective is allocate resources
among production of different goods in a way that there is no possible option left where more of
one good is produced without reducing production of some other good, Such efficiency point is
called pareto efficient equilibrium points (Galbraith, 2017). Owing to scarcity problem society
always tries to use all of its resources to attain highest level of satisfaction.
The scaricity thus leads to problems of economic choice. In daily life people faces
different choice problem. The resource is the income. With the limited income they have to make
a trade off among different choices. Government faces trade off while taking decision regarding
public investment (Sowell, 2014). That is whether to allocate more funds on health care, defense
or education. The decision depends on current status or need of the economy.
Economist often considers free market as the best means of allocating resources. In the
free market resources are efficiently allocated in lines with demand without any intervention.
Summing up all the things, it can be said that problem of scarcity exists due to limited resources
and unlimited wants and plays a vital role in economic decision making.

3ECONOMICS FOR BUSINESS
Reference list
Baumol, W. J., & Blinder, A. S. (2015). Microeconomics: Principles and policy. Cengage
Learning.
Cowen, T., & Tabarrok, A. (2015). Modern principles of economics. Palgrave Macmillan.
Galbraith, J. K. (2017). Economics in perspective: A critical history. Princeton University Press.
Sowell, T. (2014). Basic economics. Hachette UK.