Scarcity and opportunity cost

The central problem of economics can be summarised in one word: scarcity. You might argue that we do not have rationing or empty shops. We rarely have to queue for things, or order things a long time in advance. You might further argue that economics, when dealing with scarcity, only has application in poor and lesser-developed societies. However, despite these objections, economists still argue that scarcity is the central economic problem, not only in Ethiopia, Sudan and South Africa, but also in the USA and Switzerland.

Scarcity affects all of us. Take for instance your salary or income. What is your monthly income? Compare this income now with the costs involved in satisfying all your material needs/wants. Do you have enough money? I am sure that all of you would agree that our income is not enough to satisfy all our needs. We will have to make choices as to how to spend our scarce income optimally. Now this is economics!

Do you now understand that all of us have to deal with the scarcity problem and therefore also with the problem of economics? The scarcity problem is not only related to money. Take “time”, for instance. We all want to do many things in one day such as work, eat, gym, relax at the movies, study, sleep, etc. There are, however, just twenty-four hours in a day. Time is therefore scarce and we must make an optimal allocation choice with regard to the way we are going to spend our day. 

Watch this video on what is economics and how it all fits together.