Factors of Production

Date: 2015-10-07; view: 608.

The Problem of Scarcity

Theneed to make choices arises because everything that exists is limited, although some items (such as fresh water or labour) may appear to be in abundant supply. At any single moment, a fixed amount of resources is available. At the same time, people have competing uses for these resources. This situation results in scarcity- basic problem of economics.

Scarcitymeans that people do not have and cannot have enough income, time, and other resources to satisfy their every want. What you buy as a student is limited by the amount of income have. In this case, your income is the scarce resource. Even if everyone in the world were rich, however, scarcity would exist—in the form of goods and services NOT available because no one would want to work!

It is important not to confuse scarcity with shortages. Scarcity always exists because of competing alternative uses for resources, whereas shortages are temporary. Shortages often occur, for example, after hurricanes or floods destroy goods and property.

When economists talk about scarce resources, they are referring to thefactors of production, or resources needed to produce and services. Traditionally, economists have classified these productive resources as land, labour, capital, and entrepreneurship.