Scarcity Explained in Microeconomics

So, in the video, you learnt that resources are finite and are associated with a cost. Further, human wants are unlimited, whereas the resources that are needed to satisfy those wants are scarce. This is referred to as the ‘economic problem’. For eg., the three important economic problems are:

1. What goods and services to produce,
2. How to produce and
3. For whom to produce.

Most economies often go beyond these three basic problems to understand the fourth and fifth problems: how efficiently are goods produced and the trade-off between efficiency and equity. 

Throughout this course, you will learn how to allocate scarce resources optimally to solve the economic problem to the best extent possible. Every business decision involving resources will result in trade-offs. Businesses must, therefore, decide on the optimal trade-offs for achieving economically viable goals.

In fact, an important trade-off that the world faces at present is between a clean environment and high levels of growth and incomes. You would have heard of The Paris Agreement. It is a landmark environmental accord that was adopted by nearly every nation in 2015 to address climate change and its negative impacts all over the world. The agreement requires all major emitting countries to cut their climate-altering pollution. 

Additional Learning

You can read this article on Scarcity by CFI if you are interested to know more about scarcity.