What is scarcity? Why is scarcity central to the study of economics?

Short Answer

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Scarcity refers to the basic economic problem of having seemingly unlimited human wants and needs in a world with limited resources. It is central to economics because it necessitates decision-making in the allocation of these resources and drives the study of how individuals and societies manage these decisions.

Step by step solution

01

Definition of Scarcity

Scarcity, in economics, refers to the basic economic problem - the gap between limited resources and theoretically limitless wants. This situation requires people to make decisions about how to allocate resources efficiently, in order to satisfy basic wants and needs.
02

Importance of Scarcity in Economics

Scarcity is central to the study of economics because it pertains to the fundamental economic question: how to satisfy unlimited wants with limited resources. Scarcity forces choices upon us. Because we can't have everything we desire, we must make choices on how to allot our resources. In economics, this is the study of how individuals and societies navigate these choices and the impact of these decisions.
03

Concepts related to Scarcity

Scarcity leads to economy-wide problems such as inflation and unemployment. It also leads to the concepts of opportunity cost and utility. Opportunity cost is the value of the next best alternative that one gives up due to scarcity of resources, while utility is the satisfaction derived from the use of a good or a service.
04

Scarcity in Decision Making

Economics, as a field of study, focuses heavily on the concept of scarcity, understanding that resources (time, money, raw materials) are limited while desires are infinite. This leads to the necessity of making decisions, prioritizing what is most beneficial, and considering the tradeoffs connected with each decision.

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