1-2cScarcity and a Definition of EconomicsWe are now ready to define a key concept in economics:scarcity.Scarcityis the condition in which our wants (for goods) are greater than the limited resources (land, labor, capital, and entrepreneurship) available to satisfy those wants. In other words, we want goods, but not enough resources are available to provide us with all the goods we want.Look at it this way: Our wants (for goods) are infinite, but our resources (which we need to produce the goods) are finite. Scarcity is the result of our infinite wants hitting up against finite resources.Many economists say that if scarcity didn't exist, neither would economics. In other words, if our wants weren't greater than the limited resources available to satisfy them, there would be no field of study called economics. This is similar to saying that if matter and motion didn't exist, neither would physics or that if living things didn't exist, neither would biology. For this reason, we defineeconomicsin this text as the science of scarcity. More completely,economics is the science of how individuals and societies deal with the fact that wants are greater than the limited resources available to satisfy those wants.Thinking Like an EconomistScarcity Affects EveryoneEveryone in the world?even a billionaire?has to face scarcity. Billionaires may be able to satisfy more of their wants for tangible goods (houses, cars) than most people, but they still may not have the resources to satisfy all their wants. Their wants might include more time with their children, more friendship, no disease in the world, peace, and a hundred other things that they don't have the resources to "produce."Thinking in Terms of Scarcity's EffectsScarcity has effects. Here are three:the need to make choices,the need for a rationing device, andcompetition.ChoicesPeople have to make choices because of scarcity. Because our unlimited wants are greater than our limited resources, some wants must go unsatisfied. We must choose which wants we will satisfy and which we will not. Jeremy asks, "Do I go to Hawaii or do I pay off my car loan earlier?" Ellen asks, "Do I buy the new sweater or two new shirts?"Need for a Rationing DeviceArationing deviceis a means of deciding who gets what of available resources and goods. Scarcity implies the need for a rationing device. If people have infinite wants for goods and if only limited resources are available to produce the goods, then a rationing device is needed to decide who gets the available quantity of goods. Dollar price is a rationing device. For instance, 100 cars are on the lot, and everyone wants a new car. How do we decide who gets what quantity of the new cars? The answer is to use the rationing device calleddollar price. The people who pay the dollar price for a new car end up with one.Scarcity and CompetitionDo you see competition in the world? Are people competing for jobs? Are states and cities competing for businesses? Are students competing for grades? The answer to all these questions is yes. The economist wants to know why this competition exists and what form it takes. First, the economist concludes, competition exists because of scarcity.If there were enough resources to satisfy all our seemingly unlimited wants, people would not have to compete for the available, but limited, resources.Second, the economist sees that competition takes the form of people trying to get more of the rationing device. If dollar price is the rationing device, people compete to earn dollars. Look at your own case. You are a college student working for a degree. One reason (but perhaps not the only reason) you are attending college is to earn a higher income after graduation. But why do you want a higher income? You want it because it will allow you to satisfy more of your wants. Suppose muscular strength (measured by lifting weights), instead of dollar price, were the rationing device. Then people with more muscular strength would receive more resources and goods than people with less muscular strength. In that case, people would compete for muscular strength. (Would they spend more time at the gym lifting weights?) The lesson is simple:Whatever the rationing device is, people will compete for it.Opportunity CostSo far, we have established that people must make choices because scarcity exists. In other words, because our seemingly unlimited wants push up against limited resources, some wants must go unsatisfied. We must thereforechoosewhich wants we will satisfy and which we will not. The most highly valued opportunity or alternative forfeited when we make a choice is known asopportunity cost. Every time you make a choice, you incur an opportunity cost. For example, you have chosen to read this chapter. In making this choice, you denied yourself the benefits of doing something else. You could have watched television, written text messages to a friend, taken a nap, eaten a few slices of pizza, read a novel, shopped for a new computer, and so on. Whatever youwould have chosento do is the opportunity cost of your reading this chapter. For instance, if you would have watched television instead of reading this chapter?if that was your next best alternative?then the opportunity cost of reading the chapter is watching television.Opportunity Cost and BehaviorEconomists believe that a change in opportunity cost can change a person's behavior. For example, Ryan, who is a sophomore at college, attends classes Monday through Thursday of every week. Every time he chooses to go to class, he gives up the opportunity to do something else, such as earn $15 an hour working at a job. The opportunity cost of Ryan's spending an hour in class is $15.Now let's raise the opportunity cost of attending class. On Tuesday, we offer Ryan $70 to skip his economics class. He knows that if he attends his economics class, he will forfeit $70. What will Ryan do? An economist would predict that as the opportunity cost of attending class increases relative to the benefits of attending, Ryan is less likely to go to class.This is how economists think about behavior:The higher the opportunity cost of doing something, the less likely it is that it will be done.This is part of the economic way of thinking. MY QUESTION Based on your study of the material presented in chapters one and two of your text, discuss the link between scarcity, choice, and opportunity cost (please include specific examples to illustrate the link). .

Look at Exhibit 1, which summarizes some of the things about scarcity, choice, and opportunity cost up to this point. Exhibit 1 Scarcity and Related Concepts Because of scarcity, a Whatever the rationing device, people will compete rationing device is needed. for it. Scarcity and competition are linked. Scarcity Because of scarcity. people When choices are made. Changes in opportunity cost must make choices. opportunity costs are incurred. affect behavior