The Problem of Scarcity - Research Paper Example

Economics Is Said To Be Concerned With the Central Problem of Scar and Infinite Wants Table of Contents 0 Introduction 3 2.0 Explanation of theResearch Statement 4 2.1 Problem of Scarcity 4 2.2 Model of the Economic Problem of Scarcity 5 3.0 Resolution to the Scarcity Problems of the Economy 7 3.1 Resolution in the Free Market 7 3.2 Incorporation of Quotas for the Resolution 8 3.3 Important Functions of the Price Mechanism 9 4.0 Conclusion 10 5.0 References 11 6.0 Bibliography 13 1.0 Introduction The problem of scarcity is considered to be central in economics. It arises due to the prevalence of unlimited want for food, time, money and comfort with limited resources for the purpose of satisfying these wants at the same time. In the context of economics, scarcity indicates that there is absence of unlimited resources. The three basic factors of economics are scarce in nature and thus they initiate the necessity of taking up a research approach on the factors that influence the problem in the economies. Along with the discussion on the factors that create the problem, the role that market mechanism plays in sorting the problem will be reviewed in this research paper as well (Case & Fair, 2004). 2.0 Explanation of the Research Statement The explanation of the research statement that considers economics to be concerned with the central problem of scarcity and infinite wants will be presented in this section of the research paper. 2.1 Problem of Scarcity The problem concerned with scarcity is considered to be the most essential in the arena of economic. The problem is derived on the basis of the assumption that goods or resources are finite whereas, desires of the human beings are infinite. The concept of economics is concerned with the alternatives and their outcomes and concentrates on means through which societies and individuals make allocation of their finite resources for trying to satisfy the infinite wants relatively (Lipsey & Chrystal, 2007). Scarcity takes place because the relatively infinite wants of the individuals cannot be completely set-off from the utilisation of limited resources that are available. A good becomes scarce if individuals and society cannot access them freely and thus the good directs a positive price. The problem of scarcity influences all the decision makers to resolve three basic questions of the economics: What will be manufactured? How the process of manufacturing will take place? Who will be using the goods that will be manufactured? Source: Mankiw & Taylor, 2006. Goods are the answers to the first question. Production is the answer to the second question that occurs when technology and knowledge are used for application of the energy to objects for making them more valuable. The alternatives’ opportunity cost provides answer to the third question which is measured by the qualitative value of the best alternative that is sacrificed (The University of North Carolina, 2011). 2.2 Model of the Economic Problem of Scarcity The model of the problem of scarcity largely depends on the factor of efficiency. The workers, individuals, business houses, governments or the countries are normally faced with the problem of scarce economic resources. The level of efficiency is important for finding solution to the particular economic problem in concern and is measured by the factors as to how well the dwellers produce goods or services. Efficiency is also determined by the factors through which goods or services are produced at a lower cost or less resource are utilised for manufacturing a product or rendering service along with satisfying the wants of the consumers at the same time (SG Zilina, 2010). Source: (SG Zilina, 2010). The above model is a comprehensive depiction of the economic problem of scarcity that has shown the evolution of the economic problems of scarcity and has even laid the way towards the resolution of the problem. The entire model is centrally located to the choices that the dwellers of the economy make for enhancing their level of efficiency. The essence of the model is that the choices that will be made will determine the economy and this is the reason as to why the economics is assumed to be concerned with the central problem of scarcity. The economies that are determined include centrally planned economy, mixed economy and market economy (SG Zilina, 2010). 3.0 Resolution to the Scarcity Problems of the Economy The problems that are encountered due to the scarcity of resources in the free market economy are resolved by the aspect of price mechanism. In this section of the research paper, the price mechanism will be discussed that plays a crucial role in resolving the problems of scarcity. The term ‘price mechanism’ is used to determine the ways through which a host of decisions taken up by the businesses and consumers intermingle for allocating the scarce resources (Riley, 2006). 3.1 Resolution in the Free Market Source: (Economics Help, 2008). If there is scarcity of goods or services, the supply of that goods or service will fall. As a result of the scarcity, the prices of those goods or services will rise. These increasing prices act as an indicator in the free market and thus the demand for the goods or services will fall. Along with this indication, the rising prices also provide incentives for the firms for: Looking for choices or alternative sources of goods Looking for alternatives itself Thus, it is clear that in the free market, the market mechanism has the incentive to handle the issue of resource scarcity. However, there can be possibility that the market mechanisms can fail to work out efficiently due to the market failure. For example, the firms may be reluctant to visualise the future until it is too late. Thus, when the scarcity of goods will prevail, there might not be any alternative sources available in the market (Economics Help, 2008). 3.2 Incorporation of Quotas for the Resolution Another solution for dealing with the problem of scarcity in the economy is to implement quotas on the amount of goods that people can buy. This would restrict the buyers from buying excessive amount that might lead to decrease in supply. The incorporation of quota also ensures that the people with low incomes have access to the basic necessities of life. There is, however, a problem in the incorporation of quota that states that there might be prevalence of black market in the economy. This is because for acquiring certain goods, people might be willing to pay as much as the seller asks. Thus, it might be difficult to execute a rationing market (Economics Help, 2008). 3.3 Important Functions of the Price Mechanism The price mechanism performs three significant functions in the economy. The first is that of the signalling function. This shows that prices in the market will be adjusted for demonstrating exactly where resources are required and where they are not. The rise and fall in the prices indicate the prevalence of scarcities and surpluses. For example, if the prices are rising, this is a signal for the suppliers or the firms to increase their level of production for meeting the increased demand. The second important function of the price mechanism is that of the transmission of preferences. This occurs through the signalling function, the preference expression of the consumers is sent to the producers and the producers acquaint themselves of the changing nature of the needs and wants of the consumers. The third function is that of the rationing function. When there is scarcity of products, the prices increase and leave only sufficient willingness of paying with the demand required for purchasing the product. Thus, the market prices act as a rationing function for equating supply with demand (Riley, 2006). 4.0 Conclusion The research paper has thus sorted out the belief that economics is concerned with the central problem of scarcity and infinite wants of the consumers. The problem of scarcity is an integrative function of limited resources and unlimited demands of the people. From the discussion related to the topic of the research paper, it has been found out that there are even means of price mechanism that provide solution to the problem of scarce resources in the economy. The importance of the price mechanism has also been described in the research paper that supports the fact that the mechanism is helpful in resolving the problem of scarcity in the economies. 5.0 References Case, K. & Fair, R., 2004. The Economic Problem: Scarcity and Choice. Prentice Hall Business Publishing. Economics Help, 2008. Scarcity in Economics. Markets. [Online] Available at: http://www.economicshelp.org/blog/markets/scarcity-in-economics/ [Accessed March 11, 2011]. Lipsey, R. G. & Chrystal, A. C. 2007. Economics, 11th Edition. Oxford University Press. Mankiw, N. G. & Taylor, M. P. 2006. Economics. Thomson. Riley, G., 2006. Price Mechanism. Tutor2u. [Online] Available at: http://tutor2u.net/economics/revision-notes/as-markets-price-mechanism.html [Accessed March 11, 2011]. SG Zilina, 2010. The Economic Problem. SSAG Studies. [Online] Available at: http://www.ssag.sk/SSAG%20study/EKO/scarce%20resources.pdf [Accessed March 11, 2011]. The University of North Carolina, 2011. Economics: The Study of Scarcity. Depts. [Online] Available at: http://www.unc.edu/depts/econ/byrns_web/PrinEcon/SG/SVE_SG-01.pdf [Accessed March 11, 2011]. 6.0 Bibliography Gillespie, A., 2007. Foundation of Economics. Oxford University Press. Krugman, P. & Et. Al., 2007. Economics. Worth. Sloman, J. & Garratt, D., 2010. Essentials of Economics. FT Prentice Hall. Read More