ZERO COUPON BOND: Also termed a zero bond, a bond that does not pay interest, in which the return is generated by the difference between the purchase price and the face value paid at maturity. Because they do not pay interest, zero coupon bonds are sold at a discount. For example, a $10,000 zero coupon bond that matures in one year, would generate a 10% return if it sold at a discount of $9,000.
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A pervasive condition of human existence that results because society has unlimited wants and needs, but limited resources used for their satisfaction. This fundamental condition is the common thread that binds all of the topics studied in economics. Scarcity is a perpetual problem facing society due to limited resources and unlimited wants and needs satisfied with these resources. Scarcity means that society does not have enough of everything (resources) for everyone (wants and needs).
Two ComponentsConsider the two sides of the scarcity problem.
- Unlimited Wants and Needs: This is a basic characteristic of humanity which means that people are never totally satisfied with the quantity and variety of goods and services. It means that people never get enough, that there is always something else that they would want or need.
- Limited Resources: This is a basic condition of nature which means that the quantities of available resources used for production are finite. It means that the economy has only so many resources that can be used AT ANY GIVEN TIME time to produce other goods and services.
So What?What does the combination of these two fundamental characteristics mean? This scarcity problem means:
Humans live in a world of scarcity. This world of scarcity is what the study of economics is all about. That is why scarcity is usually subtitled: THE ECONOMIC PROBLEM.
- That there is never enough resources to produce everything that everyone would like produced.
- That some people have to do without some of what that they want or need.
- That doing one thing, producing one good, performing one activity, forces society to give up something else.
- That the same resources cannot be used to produce two different goods at the same time.
Is Anyone Satiated?Is the problem of scarcity immutable? Is everyone always suffering from scarcity. It might be possible, perhaps, to find someone who seems content, happy, or totally satisfied. This would seem to raise questions about the inevitability of scarcity.
- Perhaps this is someone like Shady Valley's resident multi-gadzillionaire, Winston Smythe Kennsington III. He has oodles of wealth and the capability of buying anything a multi-gadzillionaire's heart might desire.
- Or maybe it is someone like Uncle Ned, who has lived a full, satisfying life tilling the fields on his farm contently for decades and who always responds "Nothing" when asked what he wants for Christmas.
But have Winston and Uncle Ned really overcome the scarcity problem?
- If Winston decides he needs no more wealth and turns his attention to running for political office; doing charitable works; ballooning around the world; or divorcing his current wife for a new, improved model; then some of his wants and needs are clearly unsatisfied and scarcity prevails.
- Uncle Ned's apparent contentment may be the result of lower aspirations brought on by decades of disappointment. He "says" that he is happy waking up at five in the morning to milk the chickens and rustle the cows, but he might actually prefer to drink a frozen daiquiri on a Caribbean beach...IF HE KNEW HE COULD AFFORD IT!
Opportunity CostOne of the most important aspects of the scarcity problem is opportunity cost, the observation that the pursuit of one activity means foregoing another activity. With unlimited wants and needs, every valuable, consumer-satisfying good or service that is produced with limited resources precludes the production of hundreds, perhaps thousands, maybe even gadzillions of other consumer-satisfying goods or services.
This concept of opportunity cost is actually so fundamental to economics that whenever economists use the term "cost," they really mean "opportunity cost", they mean foregone alternatives.
Excessively Dismal?The apparent obsession that economists have with scarcity prompts many noneconomists to conclude that economics is a dismal science running rampant with pessimistic purveyors of negativity. Economists seem to be perpetually saying "You can't do that!" (usually raining on the parade of an election-seeking politician who optimistically promises everything to everyone). Economists would counter that this is not pessimism but realism. Society just does not have enough resources to satisfy everyone.
But does scarcity fail to consider the unbridled spirit of the human potential? What about motivational speakers who gallantly cry, "You can DO it, if only you BELIEVE you can!"? Does scarcity ignore the possibility of scientific advances, technological innovations, exploration?
Scarcity does not preclude technological advances and other discoveries that "lessen" the scarcity problem with better ways of satisfying wants and needs. In fact, scarcity actually predicts such things. People are motivated to work, go to school, invent products, discover new continents because they do not have all that they want. Why invent, discover, or explore if all wants and needs are satisfied? Increasing limited resources does not make them unlimited only less limited. Scarcity persists.
Solutions?Scarcity has been a perpetual, pervasive problem of humanity. There is no reason to think the future will escape the wrath of scarcity either. But why not? Can humans ever hope to solve the scarcity problem?
Technological advances in recent centuries have certainly done a great deal to lessen the scarcity problem. A notable share of the world's population residing in industrialized nations, while not free of scarcity, has achieved a relatively comfortable living standard. Given continued technological advances over the next few hundred years, perhaps society can solve the scarcity problem once and for all?
It might happen. Who knows what the future might bring. But such is unlikely, even with technological advances. The reason for this economic pessimism rests with the two, and ONLY two, possible ways to eliminate scarcity.
Neither of these alternatives seems particular likely.
- One, unlimited resources: Unfortunately, the planet Earth is finite. The solar system is finite. The galaxy is finite. In all likelihood, the universe is finite. None of this bodes well for achieving unlimited resources as a means of solving the scarcity problem.
- Second, limited wants and needs: If every human being had finite wants and needs that could be satisfied with a finite amount of resources, then scarcity would cease to exist. But what sort of genetic engineering would be needed for this? Would humans still be human?
SCARCITY, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2024. [Accessed: February 27, 2024].
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