Fundamental Economic Problem: Scarcity

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In this article, we’re gonna discuss the concept of scarcity and the fundamental economic problem. The fundamental economic problem is that people have unlimited wants. There’s an infinite supply of things that people across the world “want” unfortunately, we live in a world that has limited resources. So we only have so many resources available to satisfy all these wants. The wants are infinite but the number of resources that we have is finite.

So when we talk about finite resources that’s the concept of scarcity. There are scarce resources but there are all these wants, needs, and desires that people have. How do we satisfy those and that’s what economics is largely about is trying to figure out, how people make choices and trade-offs
Let’s just say, for example, you wanted to live in a world where everyone had electricity at least everyone that wanted access to electricity and that everyone could eat organic foods, and that everyone had really high-quality health care than any kind of health issues they got the best health care that everyone was able to get a college degree and that they could live in a large home with their families and have air conditioning and heat in the wintertime and you say “These are the things that are really important to me, I want to just have all these things for all people in the world who want those things.

Now the reality is that the resources that we have available to meet all these wants are limited. What I mean by that is this, let’s take electricity, okay where do we get electricity from? Well in a lot of countries right now electricity largely comes from coal and increasingly particularly in the United States comes from natural gas. We could say well there’s a lot of coal but there’s not an infinite supply of coal. So coal my last is hundreds of years but it’s not an infinite supply of coal. You say “We rely on natural gas”, well there’s not an infinite supply of natural gas too. So then one of you might say “Wait a minute, what about a windmill? We could get a windmill and now we’ve got a source of energy where we’re not having to rely on on a piece of material that we dig from the earth, it’s just from the wind”. But the thing is there’s a finite amount of places that you can put a windmill. 

So space is going to be limited. Just the idea is that there’s a limited amount of resources and so it’s not to say impossible to get a lot of people electricity and we’re getting more and more people electricity each year but to be able to get everybody electricity is a very difficult issue.
There’s gonna be trade-offs because as we use more coal for electricity that might be less coal available to make steel for cars or buildings. So if you want everyone to have organic foods well we have a limitation of how much land is there that’s available for agricultural production. We have a lot of lands but we don’t have an infinite supply of land and a lot of lands we do have is not necessarily fit for growing food and then when we want organic foods they’re saying we might have lower yields because we’re not using pesticides and so forth.

So even when we think about quality health care, we can think about how many doctors do we have available? How many doctors will we need for everybody even in the most rural areas to have access to really good high-quality health care? In terms of college education, we can think about the number of professors and it’s not just if you only think about health care and education it’s really not just about the number of doctors and professors, it’s that we have to pay these people. 

The doctors need to be paid, where are we going to get the money and the resources to compensate the doctors for doing the healthcare? For example, in the United States healthcare is almost 20% of the gross domestic product of the US. So it’s just a limitation in terms of the number of resources where those resources are people or natural resources or land or things like that, we think about everyone having a large home with air conditioning and heat and so forth well it depends on how you build a home but assuming that you use bricks there’s just a finite supply of or of wood or land where we can put homes. 
Because if we’re thinking why we need a lot of lands to do agricultural production well then that’s going to be less land available to build homes. It’s not to say that we can’t increase the number of our wants that we’re satisfying and so forth definitely over time we can have changes in advances in technology. So new technologies can allow us to satisfy more and more of people’s wants but the bottom line is that we’re always going to have an unlimited number of wants there’s just of all the people in the world if we counted up all the different things that they want we’re going to be trying to satisfy those wants with a limited amount of resources.

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