1.2 Scarcity and Choice

Introduction to Economics – Gr. 12

Text: Holt EconomicsMr. Ahmed Keshk

A group of 10 students has been assigned to making flyers to advertise for a prom fundraiser. You discover that each of these students produces 10 flyers in an hour for the total of 100 for the group in one hour.

Think of changes you could make to make the production of flyers more efficient.

Limited Resources + Unlimited Needs & Wants

= SCARCITY

Scarcity is the most basic problem of economics because it forces people to make decisions about how to use resources effectively

Every economic system must answer 3 basic questions in order to decide how to allocate resources in order to satisfy the greatest number of needs and wants.

What to produce? How to produce? For whom to produce?

A society's needs and wants can never be completely met. Thus, the society's economic system must determine the urgency of those needs and wants.

Example: Suppose a large number of people with school-age children decide to move to a particular city. Should the city build a new school to accommodate these students or should more money be spent on school buses and drivers so that more students can attend existing schools? What if both are necessary (a new school and buses)? The city must decide what resources to allocate for construction and what resources to allocate for transportation.

A society can allocate resources in many different ways.

Example: During the construction of the new school, how does the builder choose a method of production? If unemployment is high, he may decide that hiring additional workers is less expensive than investing in equipment. On the other hand, if workers demand high wages, the builder may decide to hire fewer workers and provide them with equipment that increases their speed (and thus productivity).

A society must determine how to distribute the goods and services that it produces.

Example: Who will attend the new school? Will any students at existing schools be transferred to the new school? To allocate resources effectively, a society must consider who will consume goods and services.

Once what, how and for whom is decided … economists determine if resources are being used effectively by studying productivity (the level of output that results from a given level of input).

A clock company employs 100 people to build 1,000 clocks per week.

Productivity is 10 clocks per employee per week (1,000 ÷ 100 = 10).

If the company decides productivity is too low it can start looking for other means to improve efficiency (the use of the smallest amount of resources (input) to produce the greatest amount of output)

One option would be through division of labor (assigning a small number of tasks to each worker) – e.g., one worker to attach the clock face, and another to install the power switch on an assembly line. As these steps are performed repeatedly, workers gain expertise in their assigned tasks. This activity is known as specialization allowing employees to work faster and produce more. Specialization would, then, increase production to 5,000 clocks per week. 

Another alternative would be by finding shortcuts that allow workers to construct clocks more quickly. Now, only 25 employees would be needed to produce 1,000 clocks per week (1,000 ÷ 25 = 40). Although the company produces same number of clocks, productivity increases because the input (number of workers) is reduced.

A third alternative is increasing technology - replacing workers by machines that work faster and longer at a lower cost per unit than employees.

Why do societies need to make choices about distributing resource?

Why is productivity important in a society?

Why are scarcity and choice basic problems of a community?