Limited Amount of Resources - Essay Example

?SCAR The basic question that everyone wants to ask is how long it will take before our resources end. This applies to individuals, households, firms, organizations and everyone who competes for getting a hold on the resources for survival. This is the basic economic problem which in economical notation we refer to as scarcity and choice. In simple words it can be explained that there are only a limited amount of resources available to produce the unlimited amount of goods and services that we desire. It’s a question everyone asks how to manage the scarce and limited resources that are available to us, who should be given preference to use them and how the resources can be best utilized. It is a fact that if anything is scarce it will definitely have a higher market value compared to those goods and services which are relatively widely available. (Riley 2006)i Scarcity essentially raises the question of which alternative to choose and which is better in which condition. These various choices have to be made on a daily basis by all consumers, firms and governments. (Steven 2011)iiA simple example is how the millions of people in New York City get to work. This choice of which mode of travel to take in order to get to their required destination in the least and most cost-effective amount of time is what troubles everyone. These small decisions are taken on an extensive scale on a daily basis and for most of the individuals this is more of a habitual routine than a choice but still at the first instance they had to figure out which mode is the best for them. This concept is followed by the most important concept in microeconomics, Opportunity Cost. Opportunity Cost measures the cost of any choice in terms of the next best alternative forgone. This can apply to individuals, firms and governments. For an individual whether to work extra hours or give more time to family for leisure is a choice that has to be made on a regular basis. For a government, it has to decide whether to allocate its limited budget to military or education or health. For a firm, it has to decide which machinery to use to produce the most output in the least amount of time maintaining quality. All this is not only a decision that is made without conscious thinking, it requires a lot of conscious effort from the individual’s part to investigate which option is best for him. This involves a rational Cost-Benefit Analysis. A Cost-Benefit Analysis is the process whereby individuals decide whether the advantages of a particular option are likely to outweigh its drawbacks. This is highly specific as all the known information for the available alternatives has to be taken into account and after comparing it with each other it has to be decided upon which alternative is giving the most benefit after accounting for its drawbacks (net benefit). On a micro-level thousands of millions of decisions take place to counter this problem of scarcity. A firm has to constantly perform assessment whether to hire new workers or request their existing workers to give extra hours in order to produce the excess demand. A separate department usually exists in MNC’s which has the responsibility to undertake extensive in-depth research in major financial decisions. For example, acquiring of new capital costing millions of dollars $ might be a better option than upgrading existing capital equipment. Although the initial cost will be high but the long term benefit of the first choice will outweigh the benefit of the second option. In Africa, governments have to constantly engage in a battle against poverty, healthcare and education. The question which is more important is debatable. Which sector should be given more preference depends on the positive impact it will have on the community and society on the whole. It can also mean that in a battle to provide everyone clean water and food, government might not reach its set goal for education. (CBC 2011)iii Nevertheless, it has to be viewed in such a perspective that if people are not provided the basic necessities of life, education will be not important for them. They must fill their stomachs first before they can think of going out and get basic primary education. People criticize based on a narrow minded approach, what they miss out is people have to be fed first to give them any other benefit. (D.Sachs 2008)iv The annual budget of United States of America portrays a similar picture where a lot of debate goes into deciding how resources should be allocated. The high military and defense expenditure is a reflection of the loss other sectors are facing. (Dancs 2006) Since excessive flow of money is going away from the local consumers other macro economic problems such as unemployment and high inflation arise. It takes a lot of convincing from the Senate and the Upper and Lower Houses to get a notion passed. Innocent civilians are unaware that the decisions on the government level are constantly affecting their lives in ways they can’t even imagine. It all comes down to priority. If the country’s government weighs that it’s more important to focus on its defense than its healthcare or education, then it is risking its future and lives of millions of people are at stake. (Johnson 2011)v It is important to discuss here that marginal utility from consumption of resources tend to fall as the consumption of the same product keeps on increasing. In a world filled with limited recourses and unlimited wants, marginal utility falls drastically as consumers prefer to experience a huge variety of products. This leads to high consumption and unavailability of basic necessities to the masses. People who make a decision to go with the best alternative usually understand that somebody will be at a loss when they gain. Opportunity cost can equally create a lot of problems for a firm when they have to choose how much of a product to produce. (Perkins 2004)vi The number of times the production process has to be altered is a huge cost to be incurred by the firm. After careful cost-benefit analysis the firm must conclude why is there a need to change from their existing process to the new ones and how this will create a long term benefit for them. It is unlikely that such a major decision is undertaken without thorough research. It is therefore imperative that firms who decide to go with a certain alternative should do it with authority and not take such massive cost based decisions on a routine basis. (Albert R. Jonsen 2010)vii It is not a good sign for the image of the firm to constantly spend both time and resources on deciding which alternative is best in which time period. The sacrifices that giving up one alternative will bring should be viewed in comparison to the added advantages the best alternative will have on the firm and its output. The whole concept of scarcity rests on the foundations of availability of resources and their best possible use. It will always remain a question whether the actual benefit of the alternative selected was equal to its perceived benefit, and if not then should the next best alternative be chosen at other instances. The decision after weighing the various alternatives has to come down to personal preference in real life situations. For example, if an individual has the best alternative as to watch a movie at his friend’s home theater for free, he might still opt to watch it at a cinema for let’s say $20 because he values the experience and fun of an outing. This argument can be generalized to other situations as well including the individual level, firm level or the government level. If a government knows it has limited resources for food and has to meet the basic necessities of its citizens it might still continue to fund the development of its defense system owing to the fact that it views security concerns are more important although in monetary terms it is more expensive. Such cases occur practically on a broad level, therefore, it can be concluded that it’s not only the opportunity cost that dictates the selection of the best alternative; it’s also the personal preference that somehow influences the decision of how to utilize the resources. In this imperfect world, where choices are not made for the greater good of the mankind resources are constantly being wasted and only if conscious effort is done daily on an extensive level then can the limited resources help to achieve the best possible output for the society. Bibliography Albert R. Jonsen, Kelly A. Edwards. "Resource Allocation." Ethics in Medicine. October 25, 2010. http://depts.washington.edu/bioethx/topics/resall.html. CBC. "Special Report - Famine in Africa." CBC News. August 10, 2011. http://www.cbc.ca/news/world/story/2011/07/20/f-africa-famine-topix.html. D.Sachs, Jeffrey. "How to end the global food shortage." Time Magazine World. April 24, 2008. http://www.time.com/time/magazine/article/0,9171,1734834,00.html. Dancs, Dr. Anita. "The Opportunity Cost of War." Tom Paine. September 28, 2006. http://www.tompaine.com/articles/2006/09/28/the_opportunity_cost_of_war.php. Johnson, Robert. "The 2012 Defense Budget Is The Highest Since World War II." Business Insider. July 19, 2011. http://www.businessinsider.com/2012-us-defense-budget-largest-since-world-war-ii-2011-7. Perkins, David. "Incorporating the opportunity cost of setups into production-related decisions: finding the real opportunity cost of setup activities can help management make better decisions." Find articles. 2004. http://findarticles.com/p/articles/mi_m0OOL/is_1_6/ai_n11832744/. Riley, Geoff of Eton College. "AS Markets & Market Systems." Tutor 2 u. September 2006. http://tutor2u.net/economics/revision-notes/as-markets-scarcity-and-choice.html. Steven, David. "Running Out of Everything: How Scarcity Drives Crisis in Pakistan." World Politics Review. May 03, 2011. http://www.worldpoliticsreview.com/articles/8713/running-out-of-everything-how-scarcity-drives-crisis-in-pakistan. Read More