Scarcity

Resources

Introduction

The study of economics is the study of how society manages its scarce resources. This includes:

• what to buy
• how much to work, save, and spend
• how much to produce
• how many workers to hire
• how to divide society’s resources between national defense, consumer goods, protecting the environment, and other needs

A scarce resource is a resource which is limited in quantity. Examples include land, labor, food, and time. Scarcity occurs because humans have unlimited wants for goods and services but a limited ability to produce them.

The goal of economics is to figure out how resources can be used to their fullest potential. To do this, we must often make tradeoffs. A tradeoff is when you sacrifice one thing to save your resources for something else. Examples:

• Going to a party and therefore having less time to do your homework.
• Spending money on improving your business instead of on upgrading your house.
• Taking a day off work and relaxing instead of earning a day’s wage.

The factors of production, which are the resources used to produce goods and services, include:

• capital - the tools, equipment, machines, and buildings used in production.
  e.g. office buildings, computers, lawn mowers, desks
• labor, also called human capital - the workers that put in physical and mental effort.
  e.g. a construction worker building the sidewalk, a professor giving a lecture, a doctor diagnosing a patient
• land - the natural resources used in production.
  e.g. natural gas, oil, water.

Practice Problems