Scarcity

One source of the problem is the complexity of human needs. With the world’s limited resources, only those who are lucky enough receive the full benefit. Although there are goods and services around, they are often not enough to supply the demand at the time they are needed. In addition, a resource is said to be scarce when they are not affordable to ordinary income earners, much more to the poor. This leads to inefficiency in the production and distribution of goods that results in an imbalance of wealth in society.

Available Resources

Depending on their nature, these scarce resources can be classified into three categories.

• Land
  Any natural resources like land, minerals, water, air, trees, and animals and plant life.
• Labor
  All human resources, whether manual labor, conceptual work, skilled/unskilled work or managerial work.
• Capital
  Produced goods to satisfy demands indirectly. They are goods utilized to produce other goods.

With scarcity at hand, we therefore raise the question of choice. In delivering goods efficiently, there are some choices that must be decided upon in order to achieve optimum and proper output.

• What are the goods that must be produced?
  Given a demand, there must be proper identification of the resource needed. A given body, perhaps the government, must be able to understand the needs of the people.
• How much should be produced?
  After knowing the need, it is imperative to determine the amount of goods that must be produced to avoid over expenditure and achieve good allocation of resources.
• How should they be produced?
  It is also important to know the method of production of these needed goods. This is to control the consumption of capital goods and prevent unnecessary depletion of resources.
• For whom should the goods be produced?
  The proper allocation of resources also depends on the target destination of the produced output. Therefore, priorities must be set in order to cater the sector that needs utmost attention.

Trade Off and Opportunity Cost

Given a situation of scarcity, the consumer has the choice of a trade-off and opportunity cost. Trade-off is something expended in order to receive another benefit, while opportunity cost is the advantage of selecting such choice. A basic example of trade-off and opportunity cost can be seen on a simple purchase of clothing. Take two brands of shirts as an example. Brand X costs triple the price of Brand Y. The trade-off with Brand X is that it holds a brand name for being expensive, thus the loss of additional money in exchange for the quality assurance and status. In contrast to that, Brand Y has the opportunity cost because it doesn’t have the name, has the same quality, but cheap enough to enable the consumer to buy more.

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