Question

QUE. ‘Scarcity of resources is common to all economies. That does not, however, mean that developing countries, for instance, must always stick to production methods traditionally prescribed for them. If that were so, developing countries would find it difficult to come out of the trap they are in’. Explain the role ‘scarcity of resources’ plays in economic decision making.

Answer 1

Scarcity of resources is the foundation of economic thought. The whole concern of Economics is to make sure that the scarce resources are used efficiently. From scarcity we mean the relative insufficiency of the resources when they are compared with the wants and desires of human. The desires are unlimited in nature and a satisfaction of one desire leads to emergence of the other. Scarcity of resources reflects the relative insufficiency of resources to satisfy the unlimited wants and desires. For example, land is limited on earth and land can be put on many uses which means land has alternate uses. Because land has alternate uses, each use of land involves a cost. This cost includes the opportunity cost of not choosing the land for the other purposes. When economist talk about scarcity they imply the scarcity of resources, the scarcity of capital , land and labour to produce a given level of output. These resources are known as factors of production and are limited by nature. Judicious use of all the resources requires zero wastage and efficient utilisation of resources. In this particular sense, scarcity becomes the most important concept in economics. Scarcity can be used in observing behaviour in daily life. People are bound by money and yet they have so many desires to be satisfied with the given level of money. This means they have to make a choice and face a trade-off for deciding which desire to satisfy because of the restriction imposed by money. Scarcity is however not universally true. Not all the places and all the goods are scarce. A given good at a specific point of time and at a specific place might not be scarce at all. There are cases when quantity demanded is greater than the quantity supplied and in that case, a good becomes scarce. Similarly there are cases when the quantity supplied is greater than the quantity demanded and in that particular case it would become a surplus and is no longer scarce