Macro Economics

Macro Economics

Scarcity in economics perspective refers to the concept in which human beings struggle to satisfy unlimited human wants using finite resources. In this light, we are therefore forced to make choices and give up some of the wants in order to enjoy others. The value of goods and services that we forego is the opportunity cost. For example, in production, we need various resources are the factors of production and they are not in abundance.

For instance, land includes naturally occurring resources soil, air, water, and minerals between the core of the earth and the skies. It is scarce as there is a limited amount of arable land for growing food or building settlements as a result of desertification and climate change. We cannot expand the amount of land available on earth no matter how much we want.  Labor is a human resource that effort needed in production. Similarly, human beings can work for a limited amount of time and are limited to skills and experiences. Capital is also a resource and includes tools, machinery, and money needed to bring all other factors of production together.   All these resources have a cost associated with them and everybody wants or is need of them. We, therefore, don’t have the freedom of having and using them as much as we would want.

As a result of the scarcity in factors of production, the consumable goods and services are limited and have a price range. We sometimes experience a shortage when demand more than what is produced at a certain price.  The shortage is not the same as scarcity since a shortage is technically the demand of a particular product being more than the supply at a particular price point. Consumers can have the economic power to purchase a certain product but are limited by its availability in the market. A shortage can be corrected by increasing production. Scarcity involves limitation to the resources available when satisfying human wants. When citing opportunity cost, economists usually refer to the next highest valued alternative or cost incurred for giving up satisfying a particular want.

We cannot have it all since we have unlimited wants while at the same time the resources needed to satisfy them are limited. We have to choose what to consume at a particular time. Similarly, in production, we cannot produce as much as we want since the factors of production are limited.

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In my choice, I selected washing dishes and folding laundry as the two services I produce. While engaging in these activities, I use my labor, capital, and entrepreneurship in both services. If I choose to wash dishes, the resources needed include water, dishwasher, labor, and detergent. On the other hand, folding laundry will only require my human labor. Since labor is limited to time and space, I cannot produce both services at the same time Despite how much I want and how convenient it could be when handling both activities at the same time, it is not possible. Aim humans and also lack the skill and technology to multitask such activities. Labor is therefore a limited resource.

In this case, I have to make a choice and forgo one activity in order to meet the production demands of the other.

In the event of making a choice, I have to forgo one activity in order to satisfy the other. If I choose to wash dishes, I cannot spend the time and energy in folding laundry. Within four (4) hrs I will wash four (4) loads of dishes. The opportunity cost of washing four (4) loads of dishes will be the time and the number of loads of laundry I could fold at the same time. In this case, the opportunity cost of producing four (4) loads of dishes in two hours and eight (8) loads of laundry. Relative to price, the opportunity cost of producing one (1) load of washed dishes is two (2) loads of folded laundry.

Alternatively, If I choose to fold laundry, the opportunity cost of producing eight (8) loads will be the labor and amount of dishes which are four (4) loads of dishes. Relative to prices, the opportunity cost of producing one (1) load of the folded load is five loads of washed dishes.

PAGE III: PRODUCTION POSSIBILITIES CURVE

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