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January 20, 2018 

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INSOLVENCY: The condition of a business when liabilities (excluding ownership equity) are greater than Assets. In other words, a business can't pay it's debts. This is a first step on the road to bankruptcy, but it doesn't guarantee that legal bankruptcy proceedings will be initiated.

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FIRST RULE OF SCARCITY:

The first of seven basic rules of the economy, stating that the world is faced with limited resources but unlimited wants and needs satisfied from these resources. Scarcity is THE economy problem upon which the entire study of economics is built. A primary implication of scarcity is that the pursuit of an activity results in an opportunity cost.
This rule stems from the fundamental observation that society does not have enough resources to produce everything that everyone wants. The two essential facts that create the scarcity problem are (1) limited resources and (2) unlimited wants and needs. The resources used to produce wants-and-needs-satisfying goods are finite. The wants and needs satisfied with these resources are unending.

Limited Resources

Resources--labor, capital, land, and entrepreneurship--are limited. Modern nations, like the United States, do have abundant resource quantities--millions of workers, trillions of dollars worth of capital goods, millions of acres of land. But while abundant, they are not boundless. An economy might have 100 million workers, but it has only 100 million workers. The supply of workers is not endless.

Consider these resource constraints:

  • First, while time continues to march forward, each day contains only 24 hours--no more. Once an hour passes it cannot be recovered. Time is limited.

  • Second, while the planet Earth might seem vast, it is a finite lump of matter. With exception of the daily bombardment of solar energy and occasional meteor strikes, the total amount of productive matter available on the planet was set billions of years ago.

  • Third, while the universe is also vast, and potentially boundless, if physicists are correct then the speed of light imposes a limit on the accessible universe. An unlimited universe might exist, but if we cannot see it and cannot reach it, what difference does it make?

Unlimited Wants and Needs

Wants and needs--the desire to survive and improve life--are unlimited. People are never fully satisfied. They always want more. They always need more.

Needs are best thought of as the physiological requirements to remain alive--such as food, water, and oxygen. Wants can be considered the psychological desires that enhance well being and generate happiness--such as entertainment, fun, and self-esteem.

Physiological needs are unrelenting. Breathe in, breathe out, then do it all again a few seconds later. Eat today, then grow hungry again tomorrow. As long as people are alive, physiological needs persist. People can never be totally, completely, once-and-for-all satisfied.

Psychological wants also appear to be boundless. Duncan Thurly has a thirteen inch color television, then he wants a nineteen inch set, then he wants a twenty-seven inch set with a built-in video cassette recorder, then he wants a fifty-four inch rear projection big-screen television, and then he wants a forty-two inch high-definition plasma display. Of course beyond that, he might want to watch the actual live taping of his favorite television show (Brace Brickhead, Medical Detective), then he wants to join that cast, then write several episodes, then direct several more, then take over the production company, then become a major movie mogul, then be elected President of the United States, and then rule the world.

It never seems to end. People always want more.

Implications

Scarcity is THE pervasive fact of life, which is why it occupies the first of seven rules. It is the pervasive fact of human existence. Everything studied in economics--unemployment, gross domestic product, competition, markets, inflation, money, foreign trade... everything--involves this notion of scarcity.

Consider these four notable implications of the scarcity problem:

  • Limited Production: There are not enough resources to produce everything that everyone wants.

  • Foregone Alternatives: The same resources cannot be used to produce two different goods at the same time.

  • Sacrifice: Some people must do without some of the goods and services that they want or need.

  • Opportunity Cost: Doing one thing, producing one good, performing one activity, means other things cannot be done, other goods cannot be produced, and other activities cannot be performed.
The most important implication is that decisions must be made about how limited resources are used, which goods will be produced, and which goods will not.

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Recommended Citation:

FIRST RULE OF SCARCITY, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2018. [Accessed: January 20, 2018].


Check Out These Related Terms...

     | seven economic rules | second rule of subjectivity | third rule of inequality | fourth rule of competition | fifth rule of imperfection | sixth rule of ignorance | seventh rule of complexity |


Or For A Little Background...

     | economic thinking | scarcity | limited resources | unlimited wants and needs | free lunch |


And For Further Study...

     | three questions of allocation | efficiency | allocation | dismal science | economic goals | efficiency | resources | wants and needs | labor | capital | land | entrepreneurship | satisfaction | opportunity cost | scare good | scarce resource | four estates | political views | distribution standards | production possibilities |


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