Scarcity

Why Can’t We All Have What We Need and Want?

An economy centers around the concept of scarcity. People can’t have everything they need and want because resources—natural resources, goods, and services—are limited. This means people have to make choices: spend or save, this product or that one?

The concept of scarcity is bigger than crisis-caused shortages. It relates to everyday decisions. We cannot avoid scarcity, but we can understand it and how it affects us. Understanding scarcity can help us make better and more intentional choices—both in a healthy economy and in a crisis. Voluntary exchange and specializations are two choices that ease scarcity.

The dilemma of scarcity is a basic fact in living. We cannot have everything we need and want as an individual, community, or country. There are simply not enough goods, services, or resources available. Everyone has to make choices—the individual living in the household, the businessperson, and the government official.

If goods and services have improved most people’s lives over time, why doesn’t everyone have everything they need and want? You will learn that goods and services are limited, as are all resources. At the same time, people’s wants are virtually unlimited.

Human nature drives us to do our best to improve our situation. The modern and advanced quality of life we have is a result of that drive. However, the downside of our quality of life is that people tend to want more than they have, and more than is available, during the best of times and the worst of times.

Economics and Choices

As soon as humans began walking on earth, they had needs and wants and had to make choices. Just like us, the cave man and woman had to make a series of choices over a lifetime.

Why do we have to make choices? Why can’t we just have everything that we want, when we want it?

The study of economics provides answers. Economics looks at how people decide to use resources to satisfy their wants. You might say that economics is the science of decision making.

Every person possesses three valuable resources: time, talent, and treasure. Each of us has 24 hours in a day; certain knowledge, skills, and talents; and things we treasure—not only money, but other things in life that we value. Economics shows how we can live in a world of limited time, talent, and treasure and use the power of choice to meet basic needs and pursue dreams. The choices we make have positive or negative effects on us and those around us—one decision at a time. Economics can also help explain why some groups struggle and identify opportunities to turn around hardships.

From the choices of a single citizen to all the citizens of a country, economics also can be used to explain why some nations prosper while others do not.

Specialization and Voluntary Exchange

If you want to trade with others, make sure that others value what you are doing. Exchange only works if people do it willingly because they feel that they are benefiting. To gain from exchange, make sure that you provide services or goods that others value. Otherwise, you will make a big investment in yourself (for example, gaining specialized skills) that others do not need or want. You may be able to “produce” a lot, but no one will trade with you.

Imagine you live on a remote island. It might feel a little grim if you are trying to meet your needs by yourself, but what if you aren’t alone? Imagine other people are on the island with you. They have their own needs and wants, just as you do. Think of what you can accomplish if you all work together!

Everyone has limited time, talent, and treasure to exchange for what they need and want, but people can use their resources in ways that increase their options. One way is through specialization and voluntary exchange. These approaches can optimize usage of resources and create incentives for individuals to balance their own interests with the interests of the whole group.

Specialization

When people and businesses specialize in making a certain product or providing a particular service, they get very good at what they do. Think of farmers who learn how to take advantage of seasonal changes or emergency room doctors who are able to recognize dangerous symptoms and signs immediately. With specialization, people and businesses use their resources more efficiently, and everyone benefits through better products and services.

Let’s consider that remote island. You are good at catching fish, but you have a hard time climbing trees for coconuts. Another islander is good at climbing trees and grabbing coconuts. If you work in isolation, you can get a lot of fish but barely scrape by getting the couple coconuts you need to survive. By contrast, the other islander catches only one fish—on a lucky day. However, climbing up and jumping down from trees comes to her naturally and, consequently, she can get more coconuts than the two of you need to survive.

When people become specialized in doing one thing, the opportunity cost of doing something else simultaneously increases. Are you better off spending your time and effort climbing trees for coconuts, even though you know you won’t be able to get what you need? No. Any time you spend going after coconuts could cut into your fishing time. It could also put you at risk of falling from the tree. Your island partner, who has been climbing trees for coconuts since childhood, doesn’t know how to fish, so her time spent fishing is also wasted.

Voluntary Trade

Once opportunity costs are considered, it makes economic sense for people to voluntarily exchange with others. Everyone benefits. It costs less for people and businesses that specialize to trade services with those who can quickly and efficiently provide for each other’s needs and wants. Everyone is counting on everyone else to provide certain things that can be exchanged.

Remember, everyone wants to gain something in a voluntary exchange. To decide what you can offer, consider what others value. Find a way to help them. Specializing in one or just a few things has benefits for those trading. By working with others and using your specialties on a project, employment, or service activity, you can help make each other’s world a better place. Through voluntary exchanges, particularly those based on specialization, higher standards can be met and broader goals can be achieved than if you and others work in isolation.