Economics

WHAT IS ECONOMICS
Economics was called the dismissal science because they believed that economics was a desolate subject and even slavery was higher in morals if compared to economics and the market of demand and supply. Macroeconomic and microeconomics are two main branches of economics economics is a very vast subject which can be seen with varying perspectives and theories, but the laws and the concepts remain the same. The topic that we will discuss in this paper belongs to the microeconomics branch  scarcity and choice.

SCARCITY AND CHOICE
The basic economic problem is of scarcity that is, resources are limited whereas wants are unlimited. If we have a deeper look, the problem lies where needs are finite but wants are infinite and since the society has insufficient resources to fulfill all the wants, the problem of scarcity arises. People might just need to eat 3 meals a day including breakfast, lunch and dinner, but they want to eat more than that thus, they go for an evening snack, then a midnight snack not always because they are hungry, but because they felt like eating. Likewise, a rich family of 3 members need to live in a house which has a maximum of 3 bedrooms, but to utilize their wealth and live according to the standards of their wealth, they might want to live in a bigger house with more bedrooms, more spacious lounge, a huge garden etc. A more economic example would be in terms of money  a man needs only 100 to shop for his monthly groceries, but he would definitely want or desire to buy more items to live a more luxurious life and thus, demandwant 500. This clearly identifies the difference from need and want  need being a necessity, while want is just a luxury.

However, when we do not have enough resources to fulfill our needs or wants, that is, not have enough resources to fulfill our needs, we need to optimize the use of the existing resources. Scarcity necessitates choice that is, resources have to be allocated amongst competing needs or alternative uses. For example, an unemployed man has one house he can either live in that house and provide himself and his family with shelter, or he can give it out on rent and earn the money to provide his family with food and fulfill all their basic needs. This choice is usually made by economic agents such as individuals, firms and governments. Each choice involves a trade off that is, as you go to choose more of one thing, you have to choose the less of another. Economists use the term opportunity cost to refer to cost expressed in terms of foregone alternatives it is the benefit lost from the next best alternative.

The resources that are mentioned are basically the factors of production the division of the societys resources  land, labor, capital and enterprise. Land includes all the natural resources and the free gifts of nature labor is the human capital available to us with acquired or inherited skills capital is the man made resources available for production and lastly enterprise are the entrepreneurs who take risks to reap profits.

This problem of scarcity can be represented on a production possibility curve. The production possibility frontier, also known as the production possibilitytransformation curve and production possibilitytransformation boundary, is defined as a curve that shows the maximum combinations of goods and services that an economy can produce from a given amount of resources within a given amount of time, generally a year. However, there is one assumption that holds true for all production possibility frontiers, that all the resources are fully and efficiently employed (Shell, 1998). Production methods are said to be inefficient when it is said to produce more of one good without producing the less of another good  this is the concept of tradeoff which states that in a fully employed economy, more of one good can only be produced when resources are freed up by producing less of another good.

POSITIONING OF THE PRODUCTION POSSIBILITY CURVE

Each point on the production possibility curve represents a different allocation of resources for the production of the two goods that are being weighed on the production possibility curve. It can be said that the production possibility curve is a tool used to represent the nature of the basic economic problem of scarcity  the needs are finite but the wants are infinite.

Points that lie exactly on the production possibility curve illustrates the concept of choice by means to choose the amounts of alternative combinations that are attainable (Sloman, Sutcliffe 2003). Points that lie outside the curve explain exactly the scarcity such points are unattainable because they are outside the production possibility frontier, meaning that the economy has insufficient resources to produce that particular combination of goods and services. Points that lie inside the production possibility frontier are attainable because they usually require resources less than what are currently present with the economy. In fact, what they intend to produce at a point within the production possibility frontier is a combination which can be exceeded and more can be produced because the amount of resources available within the economy are greater than what are being used at the moment. Therefore, points inside the production possibility curve represent an inefficient use of resources, which means underemployment of resources. Additionally, it represents a failure to use up all the existing resources, which means unemployment of resources.

Shifts of the Production Possibility Frontier

There are only two types of shifts in the production possibility frontier  inwards and outwards. If there is an increase in the production capacity of an economy defined as economic growth, the production possibility curve shifts outwards. Rather than more of one good leading to less of another, economic growth allows you to produce more of both goods. All previously unattainable points now become attainable as the production capacity rises.

If there is a decrease in the productive capacity of the production possibility curve, the PPC will move inwards (Wessels, 2006). This usually occurs when there are natural disasters or conditions of wars and even conditions like the 911 or any other unpredictable event. The previously attainable points become unattainable there are two reasons why economic decline occurs a decrease in the quantity of resources available for production for example, labor force decreases due to a lower population or stock of capital goods decreases with decreasing investment. Secondly, a decrease in the quality of resources for example, a decrease in education and training makes workers less productive or a decrease in technical know-how makes the machinery less productive.

Therefore, it is evident that a countrys production possibility frontier can definitely shift inwards as any country can face a natural disaster and every country is exposed to uncertainties. However, every economy should stay on the production possibility curve and strive not to shift inwards, in fact, make arduous efforts to shift outwards for further economic growth.

TYPES OF ECONOMIC SYSTEMS
This problem of scarcity leads to the three most basic economic questions what to product, how to produce and for whom to produce The way these questions are answered depends on the kind of economic systems in power at that time  capitalist (command), market or mixed. Capitalist or command economy is the one in which the government decides upon everything usually they produce cheaper goods so that they can be affordable for all but their quality is not very high. Whereas, in a market economy the quality is high but then the goods are not cheap also the market forces of demand and supply work here to find the price and quantity of the goods and services. A mixed economy is an amalgamation of both.

IMPACT OF SCARCITY AND CHOICE ON SUPPLY AND DEMAND

It is because of scarcity that we need to make choices and because of those choices we need to see what we should buy and what we should not buy depending on prices. Demand is basically the quantity of goods and services that a consumer will be willing to buy at a certain price over a given period of time. Effective demand occurs when one demands of needs something and also has the purchasing power to actually afford it (Sowell, 2004). Quantity is a collective term but the level of quantity demanded is referred to for a certain price level. Demand is by nature a flow variable because we measure it as so many units of quantity demanded over a certain period of time. The factor that influences demand the foremost along with others is naturally the price level this leads to the law of demand. The higher the price, the lower the demand this is because higher prices reduces the purchasing power of a buyer by reducing the income level. Therefore, the lower the price, the higher the quantity demanded. The other factors that affect overall demand are the substitute goods, complementary goods, population, personal tastes and preferences, government policies and of course level of income.

Same goes for the producers and suppliers even they have scarce resources to produce with, therefore, they need to see what is in demand by the consumers in the market. They assess what is in demand in the market and then they make a choice of utilizing those resources into producing what that will sell. Supply is the quantity of those goods that sellers and producers are eager and capable of selling at a certain price over a particular period of time. Again, apart from many other factors, price affects supply the most leading to the law of supply. The higher the price, the more the producers are willing to sell their product this is because the higher the price, the more their cost of production is being covered by the revenue generated. Likewise, lower the price, the lower the quantity supplied (Sloman, Sutcliffe 2003). Therefore, whatever is in demand is supplied and all these scarcity and economic systems have a deep link.