The principle of scarcity states that we are more easily persuaded when the resource is limited.For example,if you have one job interview, then the scarcity of interviews makes you highly value this one interview. This puts extreme pressure on you to get that job and is likely to cause you to perform poorly in the interview. On the other hand, if you have many job interviews(many choices available), you place less emphasis on each interview as each one is not very scarce. The interviews possess less value which allow you to relax, perform better, and increase the chances of you landing a job.
Scarcity necessitates trade-offs,and trade-offs result in an opportunity cost.While the cost of a good or service often is thought of in monetary terms,the opportunity cost of a decision is based on what must be given up(the next best alternative)as a result of the decision.Any decision that involves a choice between two or more options has an opportunity cost.
A Production Possibility Curve(PPC) is a graph that shows the different rates of production of two goods that an individual or group can efficiently produce with limited productive resources. The PPC shows the maximum obtainable amount of one commodity for any given amount of another commodity or composite of all other commodities, given the society's technology and the amount of factors of production. Imagine an economy that can produce only wine(product A) and cotton(product B). According to the PPC, points A, B and C - all appearing on the curve - represent the most efficient use of resources by the economy. Point X represents an inefficient use of resources, while point Y represents the goals that the economy cannot attain with its present levels of resources.
As we can see, in order for this economy to produce more wine, it must give up some of the resources it uses to produce cotton (point A). If the economy starts producing more cotton (represented by points B and C), it would have to divert resources from making wine and, consequently, it will produce less wine than it is producing at point A. As the chart shows, by moving production from point A to B, the economy must decrease wine production by a small amount in comparison to the increase in cotton output. However, if the economy moves from point B to C, wine output will be significantly reduced while the increase in cotton will be quite small. Keep in mind that A, B, and C all represent the most efficient allocation of resources for the economy; the nation must decide how to achieve the PPC and which combination to use. If more wine is in demand, the cost of increasing its output is proportional to the cost of decreasing cotton production. Point X means that the country's resources are not being used efficiently or, more specifically, that the country is not producing enough cotton or wine given the potential of its resources. Point Y, as we mentioned above, represents an output level that is currently unreachable by this economy. However, if there was a change in technology while the level of land, labor and capital remained the same, the time required to pick cotton and grapes would be reduced. Output would increase, and the PPC would be pushed outwards. A new curve, on which Y would appear, would represent the new efficient allocation of resources.
Points along the curve describe the trade-off between the two goods, that is,the opportunity cost.Opportunity cost here measures how much an additional unit of one good costs in units forgone of the other good. The curve illustrates that increasing production of one good reduces maximum production of the other good as resources are transferred away from the other good.
In economics, utility is a measure of the relative satisfaction from, or desirability of, consumption of various goods and services. Given this measure, one may speak meaningfully of increasing or decreasing utility, and thereby explain economic behavior in terms of attempts to increase one's utility.The two basic ways of measuring utility are total utility and marginal utility.Total utility is the total satisfaction gained from consuming a certain quantity of a product while marginal utility is the extra utility gained from consuming one more unit of a product.
Economics is also a study of rationing systems.Since the resources in an economy are relatively scarce,there must be some way of rationing those resources and the good and services that are produced by them.There are two main rationing systems,i.e,planned economies and free market economies.
A planned economy or directed economy is an economic system in which the government or workers' councils manages the economy.It is an economic system in which the central government makes all decisions on the production and consumption of goods and services.Its most extensive form is referred to as a command economy,centrally planned economy, or command and control economy. In such economies, central economic planning by the state or government is so extensive that it controls all major sectors of the economy and formulates all decisions about their use and about the distribution of income.The planners decide what should be produced and direct enterprises to produce those goods. A free market economy is a market economy based on supply and demand with little or no government control. A completely free market is an idealized form of a market economy where buyers and sells are allowed to transact freely (i.e. buy/sell/trade) based on a mutual agreement on price without state intervention in the form of taxes, subsidies or regulation. In financial markets, free market stocks are securities that are widely traded and whose prices are not affected by availability. In foreign-exchange markets, it is a market where exchange rates are not pegged (by government) and thus rise and fall freely though supply and demand for currency.
Some countries,which were predominantly centrally planned, such as Cambodia,China and Laos have been moving towards transition economies.A transition economy or transitional economy is an economy which is changing from a centrally planned economy to a free market.Transition process is usually characterised by the changing and creating of institutions, particularly private enterprises; changes in the role of the state, thereby, the creation of fundamentally different governmental institutions and the promotion of private-owned enterprises, markets and independent financial institutions.
Economic growth is the increase in the amount of the goods and services produced by an economy over time.It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP. Growth is usually calculated in real terms, i.e. inflation-adjusted terms, in order to net out the effect of inflation on the price of the goods and services produced. In economics, "economic growth" or "economic growth theory" typically refers to growth of potential output, i.e., production at "full employment," which is caused by growth in aggregate demand or observed output.Economic growth is actual growth,a movement from a point inside the production possibility curve to a point that is nearer to the curve.
Economic development is the development of economic wealth of countries or regions for the well-being of their inhabitants. It is the process by which a nation improves the economic, political, and social well being of its people.It is usual to measure economic development in terms of education indicators,health indicators and social indicators.
Sustainable development is a pattern of resource use that aims to meet human needs while preserving the environment so that these needs can be met not only in the present, but in the indefinite future. Sustainable development ties together concern for the carrying capacity of natural systems with the social challenges facing humanity.
Munisha Kumra
5X
Thanks for the thorough links to the definitions. Perhaps you can just paste the links instead of having it as the main body of your blog posting, and work more on the applications of the concepts to real life.
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