Scarcity being the central economic problem is defined as the inadequacy/ insufficiency/ inability of (economic) resources or goods and services available to fully satisfy unlimited wants. Human wants are people‟s desires for goods and services (backed by the ability to pay) and the circumstances that enhance their material well-being. Human wants are, therefore, the varied and insatiable desires of human beings that provide the driving force of economic
Scarcity is a relative concept relating the availability of resources or goods and services to their abilities to satisfy the unlimited wants, that is, relating people‟s wants to the means available to satisfy them. Scarcity s therefore not the same as „few‟ resources.
Resources are the means or ingredients or inputs available for producing the goods and services that are used to satisfy wants.
Since resources are scarce (limited in supply) it implies that such resources have alternative uses and command a non-zero price. Thus, scarce resources are known as economic resources and goods and services made available (produced) by utilizing such resources are referred to as economic goods and services.
A resource be it Land, Capital, Labour or Entrepreneurial ability, can be put to alternative uses (used to satisfy a variety of human wants) e.g. in terms of Land, a plot can be used for various purposes with a view to satisfying wants on it; one can construct residential houses, commercial buildings, an educational center or undertake some farming activity. Moreover, income is not readily and sufficiently available to satisfy all wants like food, clothing, basic education, medical care, shelter, security, entertainment and many others. Most people would probably like to have more of many goods of relatively better quality than they have at present: larger houses perhaps in which to live, better furnished with the latest labour-saving devices such as electric cookers, washers, refrigeration; more visits to theatre, more travel, the latest self-actualisation car models, radios and television sets, and largely exhibit an apparently insatiable desire for designer clothes.
Scarcity is a feature of all strata of society, the affluent and the lower income bracket since it is human nature to want more than one can have.
Choice is (may be) defined as the power of discretion, that it, the ability and freedom to select from alternatives or simply as the act or decision of selecting from competing alternatives. Choice arises due to scarcity of resources with such resources having competing alternative uses and therefore cannot satisfy all human wants pertaining to them at the same time. Choice is made between alternatives depending on scale of preference which differ between an individual consumer, producer (firm/investor) or government; determined by the view to maximize satisfaction, return and equity in provision (especially) of public and merit goods respectively. A rational consumer chooses those goods (and services) from which maximum satisfaction is derived; for an investor, choice is made of those ventures, which yield the highest possible return at least cost; a government that embraces the dictates of good governance would seek to ensure equity in distribution of the scarce resources by prioritizing between alternatives, for instance, choosing to spend more on public goods (such as physical infrastructure – roads and other qualitative aspects like Law and order) and merit goods (such as education and health); resource owners, on their part, choose where to hire out their factor services in order to maximize their factor incomes – an owner of residential houses may decide to convert them into offices if the rental income from offices is relatively higher.
- Resource owner
The basis of choice:
- To maximize utility
- To maximize profits
- To maximize returns on factors
- To maximize equity
Overall choices are made by economic units which include the consumer, producer, resource owner and the government with a view to maximizing utility, profits, returns on factors owned and equity in provision of public and merit goods respectively.
While making a choice, the tendency would be to either opt for one alternative and none of the other or both alternatives with more of one and less of the other.