Monday, August 02, 2004

Scarcity is the central economic problem in all societies, irrespective of the type of economic system

This essay is to discuss and amylase one of the most important economic issues that is no matter what type of the economic system, scarcity is the main economic problem in all societies. Firstly, the explanations about scarcity and economic system will be given. Secondly, it will investigate why scarcity is the key issue. Finally, the conclusion will be made.
To investigate this issue, the brief idea of scarcity and the types of the economic system will be given. As far as people know that resources, which include labor, land and capital, are limited. However, the demand is unlimited. As a result, what people can produce seems to take a little part in what people want to have. Therefore, scarcity is the excess of the total demand over what can be produced. (John, 2003 P3-5) Now it comes to the kinds of economic systems. There are three kinds of economic system, command economy, free market economy and mixed economy.
To assume that if all kinds of goods can be produced unlimited in order to meet every single person’s needs. What will happen seems to be that human beings will not be worried about the limited income they have, government may not care how to change the tax to increase the revenue and enterprises will not be worried about the cost or the resources. As it has mentioned above, supply is limited. Nevertheless, demand is unlimited. To choose the United States as an example to analyze it, the USA seems to be one of the richest countries in the world. However, not every American people who want to buy a car can have one. In addition, many people wish not to live in their currently accommodation, but houses. (11 Chris multhearn) Therefore, scarcity not only exists in developing countries, but also developed countries. It can be said that scarcity seems to exist in all societies.
In every country, the most important problem that people have to face appears to be resources are insufficient. For that reason, people may not achieve what they want to. In other words, to achieve one goal, some alternatives seem to be given up. There are profuse choices in people’s lives. Because of scarcity, human beings may need to decide how to deal with the restricted time and money. No matter which decision has been made, the other opportunities must be given up. These opportunities, which have been given up, called opportunity cost that can be defined as the value of the best choice that must consequently be given up. (Chris, 2001 P10-12)
Because of the scarcity, efficiency, which is defined as how to use resources in the most effective way to meet human beings’ requirement, should be paid more attention. Because the resources are scarce, the issue that is how these resources should be used or allocated seems to be extremely important.
As the table shown, if the cars are produced less, the cheese can be generated more and vice versa. It seems no doubt that both cars and cheese can be produced less at the same time, however, because of the resources are scarce, people may not want to waste resources. Otherwise, due to the scarcity, cars and cheese cannot be created more at the same time. The graph has been drawn in order to show it much more clearly. The curve is every possible choice as a point in the graph to be linked. To put it in other words, it means that each point on the curve is the most effective way to use resources to produce cars and cheese. That is to say, the other choices are a waste of resources. This curve is called production-possibility frontier, which is short for PPF.
In the real world, every country seems to be the mixed economy. However, scarcity exists as the central economic problem in command economic system or free market economic system. In command economic system, government seems to consider how much should be produced for each product. In free market economic system, enterprises appear to find the most efficient way to produce in order to maximize the profits. Therefore, on a whole, all of these activities are because of scarcity.
To sum up, the reason why PPF, efficiency, and opportunity cost exist as the extremely important aspects in all societies, irrespective of the type of economic system, seem to be resources are finite. If there were no scarcity, the economic goods will not be existed, even the market cannot continue existing. Therefore, in every society, in every kind of economic system, scarcity is the most important economic issue.
Chris, M., Howard R. Vane and James E. (2001) Economics for Business Palgrave
John, S. (2003) Economics (5th edition) Italy: Rotolito Lombarda
David, B. (2003) Economics (7th edition) London: McGraw-Hill
Kyorin (N/D) The Economic Problem: Scarcity and Choice
(Visited on 30 September 2003)
Graham, D. Fitzpatrick Micro Economics New Theories and Old (1986) Oxford University
The Nuffield Foundation Nuffield & Economics Business (2000) Harlow: Longman


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