Finite and infinite resources
Today’s topic is going to be about Scarcity. If there is a single word that makes or breaks so much of a context in economics it is scarcity. Or it’s antonym abundance.
Now there is nobody better to explain the basics of economics than the 18th-century Scottish philosopher Adam Smith, also considered as the father of economics. One of his principles is “individuals by essentially pursuing their own self-interests might be doing more good for the society than if any of them actually tried to look after the overall well-being of the society”. Though he concurs that it’s not always good for someone to act in their own self-interest or never good for people to think about the overall well-being of their society.
The beauty of the above statement (in bold) is that it has a mix of both micro and macroeconomic context to it. Micro because it talks about the self-interest of the individual players in a scenario and macro because it might end up being good for the society as a whole.
What this has got to do with scarcity, right?
When you are acting in your own self-interest, you tend to invest your resources only on things that might give you more value in return.
If you are offering labor, there are only ‘x’ amount of hours in a day you can offer.
If you are offering a service, there are only ‘y’ amount of resources available at your disposal.
If you are offering love, there is no end to it and hence it’s not a scarce resource.
A scarce resource is something that you don’t have an infinite amount of. And microeconomics is all about how do people decide to put those scarce resources, where to deploy them.
So how do we understand what had happened by deploying these resources and the outcome of it? Enter mathematics. Once you prove things with math, you can start to visualize with charts and graphs. And since you are able to prove, it brings a kind of clarity and clarifies your thinking. Hence it’s very valuable. But to take philosophies or decision-making attributes and prove them mathematically requires some kind of simplifications/ assumptions on your part. The caveat here is that the math is going to lead you to some very strong conclusions but remember these were achieved with some kind of simplified assumptions in the first place.
Macroeconomics is all about what happens at the aggregate to the whole economy, from the actions of millions of these individual players. And hence it focuses on policy-related questions - should the tax be raised or lowered, should the industry be regulated or deregulated, how long the recession will last, etc. Visualizing the macroeconomic data mathematically through charts or graphs is ultra-complicated because you have millions of individual actors with unpredictable interactions with each other. You are going to start off by trying to make assumptions on those and then doing math with that.
So we have understood in both micro and macroeconomics, though math is required, it might lead to unrelated solutions. It is the duty of the economist to understand if the math is strange or not due to the oversimplification.
Final words on scarcity
Economists generally believe there is never enough of anything to satisfy all those who want it. And so the first lesson of politics is to disregard the economists. Scarcity is the central idea in all of economics. In fact, that’s the reason we need a field called Economics.Some questions
When a limited amount of resource is available, consumers must:
a. Fight for them
b. Wait
c. Demand more
d. Choose an alternative
If a good has a cost, then it is considered as:
a. Not scarce
b. A need
c. Scarce
d. A want