In economics, when we talk of scarcity in economics, it refers to scarcity of resources. And resources refers to inputs we use to produce useful goods and services we would like to have. In economics, these resources are also called factors of production, which are typically classified as labor, land and capital. Capital refers to durable goods used in production of other goods. Labor refers to all type of work performed b people. Land refers to not just the land used for agriculture or other purposes but all the natural resources taken from above or below the soil. Thus all raw material used in production are classified as land because in ultimate analysis these are derived from nature. Money is neither a factor of production, nor a finished product that is used by people to obtain some satisfaction. Money is only a means of facilitating exchange of goods and services, including factors of production between people.
It appears to us that we lack money so we cannot buy things. So we think money is scarce. But in economics this money available with us only represents our share of all the goods produced and available in economy. And how we choose to spend our money impacts the way society allocates its scarce factors of production to producing different goods. For example, how much of wheat the farmers produce in their farms is determined by the market price of wheat, which itself is determined by amount of money all the people in an economy are willing to spend on wheat and other products made of wheat.
It is worthwhile noting that factors of production or goods that are abundant rather than scarce are available free. Take for instance the air we breathe. It is the most essential thing in our life, We cannot live without breathing air even for five minutes. Still air is available to us absolutely free. This is because air available in abundance. The total quantity of air available to a society is much more than the total air it needs to use.
No comments:
Post a Comment