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Scarcity and the Economic Problem

Understand scarcity as the root cause of economic problems — the three reasons for their existence and the features of resources vs human wants.

Notes

Scarcity and the Economic Problem

Class 11 Microeconomics — Understanding Scarcity, the Root Cause of All Economic Problems

What is Scarcity?

Scarcity
Scarcity refers to the limitation of supply in relation to demand for a commodity. It refers to the situation when wants exceed the available resources. As a result, goods are not readily available, and society does not have enough resources to satisfy all the wants of its people.
Scarcity is universal — every individual, organisation, and economy faces it. Scarcity calls for economizing of resources — making optimum use of available resources.

Resources Have Alternate Uses

In addition to being scarce, resources also have alternate uses. Whenever a commodity is chosen for one use, other valuable uses must be rejected — giving rise to the problem of choice.

Petrol
Vehicles
Railway Engines
Airplanes
Machines
Generators
"Scarcity and Choice go together" — every "yes" to one use is a "no" to all others.

The Economic Problem

Economic Problem
Economic Problem is a problem of choice involving satisfaction of unlimited wants out of limited resources having alternative uses.

Scarcity of Resources

Resources are limited in relation to demand. This is the basic reason for economic problems in all economies. Scarcity is universal.

A farmer has 5 acres of land — cannot grow everything at once.

Resources vs Human Wants

Resources Vs Human Wants
AspectResourcesHuman Wants
AvailabilityThey are scarce — supply is limited in relation to demand.They are unlimited — can never be fully satisfied.
Nature of UseThey have alternative uses.They differ in priorities — all wants are not of equal intensity.