Economics is about Scarcity and Choice
The principle of scarcity and choice works well in free markets. In these markets the consumers and the suppliers are left on their own to meaningfully engage and reach consensus on the price and the quantity of the good or the service. There are no restrictions from the government except intervention to reduce or eliminate fraud. Indeed, scarcity and choice takes pronounced preeminence in free market economies. Here, decisions are strictly left to interaction of the forces of demand and supply.
Economics will always involve the use of the very few resources available to satisfy a host of wants and needs. In striking a balance between the many wants and the limited resources individuals will have to make choice based on the scarce resources. Choice on the other hand involves the selection of one option from many (Lipsey, R.G., Harbury C., 1992, p 45). In selecting one from many, the availability of the resources needed is put into consideration.
Within the above prelude, scarcity is therefore the limited supply of anything. On the other hand choice encompasses the selection of the best desired option from many. In selecting the best, individuals will subject the decision to a number of factors. The cost of the options, given the limited resources is very important in the making of the choice subject to the availability of resources.
Production involves a number of factors. At some point a firm may just wish to make a choice on whether or not it should employ labor intensive or capital intensive production techniques. In making this decisions the firm will consider its objectives and the available resources ((Rajagopalachar, 1993, p 168). Ultimately the concepts of choice will have been taken care of in the production process.
When individuals wish to travel, there are a number of means that can be used. In a similar manner the individual has to make the decision based on a number of considerations. One may just use a plane if the person has the required resource or opt for a train if the person feels the resources available can only afford the train. It becomes evident therefore that at all point one has to make a choice relative to the resources available.
The above discussion paves way for an in-depth analysis of decision making in varied cycles ranging from consumer behavior to the behavior of a firms in decision making. The assumption in the entire decision making will be that there are two options at hand from which individuals have to make choices.
Consumer Choice
The advent of industrialization has offered the consumer with a number of options almost with the same tastes or with equal utility. Such state presents an analytical case. In economics indifference curves are utilized to analyze the consumer behavior. The assumption in this analysis is that there only exist two units from which choice is to be made. Considering two brands for example say brand X and brand Y both meant to offer equal utility. The consumption of one brand will always depend on the consumption of the other brand.
In the indifference curve above A and B represent two points with equal utility. However the combination of brands X and Y are different at the two levels. The essence of getting the different combinations is as a result of the fact that the available resources could not support the consumption of a different combination other than at A and at B. however it need to be noted that the utility along the curve is the same.
This satisfaction will not remain the same with the increase in consumer income. The satisfaction could be shifted to a level higher than it is in the indifference curve above. The satisfaction will be represented by the curve below
The increase in income will make the consumer move the level of utility from I1 to I2. At this level of satisfaction the consumer still has a number of combinations that the consumer can access. Sloman argues ( HYPERLINK httpbooks.google.co.kebooksqinauthor22JohnSloman22sourcegbs_metadata_rcad4 Sloman J., p 265) that even with increased income, because of the scarce resources the consumer is restrained from making just any choice. This indifference curves are therefore subject to a constraint (budget constraint). The constraint is subjected to the budget line both before and after income increase.
In the indifference curve W, the consumer income subjected to the available resources permits the consumer to satisfy his needs at D with combinations X1 and Y1. When the consumer income increases, the consumer is still restrained by the budget line to make a choice on how to combine brand X and brand Y finally the consumer consumes at D, X1 and Y1.
Consequently with increased income the consumer increases his utility to I2 with different combinations of brand X and brand Y. These combinations are curtailed by the budget constraint giving a consumption combination at D2.
From the graphs the ability of a commodity or service to satisfy human wants will vary from one brand of a good to another (Weed M., p 76). However given the scarcity of resources consumers will make choices subject to the availability of resources represented by the budget constraint (budget line).
Decision Making In Firms
The production process entails the combination of the different factors of production to give a finished product. These factors are combined based on a number of factors. The objective of the firm could play a role in making such decisions ( HYPERLINK httpbooks.google.co.kebooksqinauthor22JohnSloman22sourcegbs_metadata_rcad4 Sloman J., p 231). Where the firm wants to create employment, for example, labor intensive production techniques will be adopted (Rajagopalachar, 1993, p 186). This could also be prompted by the availability of resources. In making this investment decision, it is assumed that there exist only two factors of production in the market (Lipsey, R.G., Harbury C., 1992, p 141). Isoquant curves are use in this important analysis.
The graph provides a decision making model based on the two factors of production, labor and capital. Strictly the decisions are restrained by the company objectives and resource availability. A firm that opts for a labor intensive production method will produce at P1 with a combination of L1 units of labor and C1 units of capital (Hechscher-Ohlin, 1949, p 39). On the contrary, a firm whose intention is to adopt capital intensive production techniques will produce at P2 engaging L2 units of labor and C2 units of capital.
Conclusion
In a free market economy consumer will be subjected to decisions making. A dreamer will envision a free world with wants freely at his disposal, a dreamer. However, all decisions are ultimately constrained by the resources that are in scarce supply within a free market. Within the precincts of the restrictive assertion, economic decisions simply involve trade offs. A market that is free in its orientation will facilitate this decision making process, both in the factor market and product market. In making these choices, opportunity cost is quite inevitable. One of the options has to be foregone (Baumol W J, p 42).
Human beings are always exposed to a multitude of options from which they may make choices. However, because of the limitedness in supply of the requisite resources, a choice is to be made from the many. In making the choice, consideration is given to the preference of the consumer or decision maker subject to availability of resources. Ultimately, the wants will remain unlimited as the resources remain limited economics strive at striking a satisfactory balance between the two extremes.