Scarcity Notes

How Are Choices Forced When Wants Are Unlimited?

1. Even when a resource seems abundant, it is still finite when compared with what people could potentially use.
2. This is the central idea of scarcity.
3. Where poverty is a condition where people lack sufficient income or access to essentials, scarcity is broader.
4. It exists in every society, including wealthy ones, because there is always a limit to time, labour, materials, and technology.

Opportunity cost is the price of choosing

1. Because we can't do everything, every decision has an opportunity cost.
   1. If a government spends more on road-building, it may have to spend less on healthcare.
   2. If a firm uses steel to make cars, it cannot use that same steel to make trains.
2. Opportunity cost matters because it makes choices visible.
3. It encourages better questions, such as:
   1. What are we giving up?
   2. Who benefits and who loses?
   3. Are we using resources in a way that matches our priorities?

What Are Factors of Production?

1. They are essentially the inputs scarcity limits.
2. The four factors of production are:
   1. Capital: human-made resources used to produce other goods and services (machines, tools, buildings, infrastructure).
   2. Entrepreneurship: the ability to organise production, take risks, and innovate by starting and running businesses.
   3. Labour: human work and effort (physical and mental).
   4. Land: all natural resources (soil, water, forests, minerals, energy sources).
3. Scarcity can affect any of these factors:
   1. A drought limits land (usable water, crops).
   2. An ageing population can reduce labour.
   3. Low investment may reduce capital.
   4. Strict rules or instability can discourage entrepreneurship.

How Does the Production Possibilities Frontier Show Trade-Offs?

1. One common way to visualise scarcity is the production possibilities frontier (PPF), sometimes called the production possibilities curve (PPC).
2. Imagine a country can only produce two goods, such as books and computers. If it uses all its resources efficiently, it can produce combinations along its PPF, such as:
   1. many hamburgers and few laptops, or
   2. many hamburgers and few laptops.

What points on, inside, and outside the PPF mean

1. Points on a PPF (on PPC₁ or PPC₂) are productively efficient: all resources are fully used, and producing more of one good requires giving up some of the other.
2. Points inside the PPF (inside PPC₁) are inefficient: resources are underutilised (for example, unemployment or wasted capacity), so output could increase without a trade-off.
3. Points between PPC₁ and PPC₂ were previously unattainable, but become attainable after economic growth.
4. The outward shift from PPC₁ to PPC₂ represents economic growth, caused by factors such as technological progress, increased resources, or improvements in productivity.
5. Points outside PPC₂ remain unattainable with current resources and technology.

Why the PPF is curved

1. In many realistic cases, the PPF is curved outward because resources are not equally good at making every product.
2. If you shift more and more resources into producing computers, you may have to take resources that are less suitable for that task, so the opportunity cost rises.

How a PPF can shift

1. A PPF can move outward when an economy gains:
   1. more resources (more labour, more land, more capital), or
   2. better technology (producing more with the same inputs).
2. It can shift inward after shocks such as war, natural disasters, or long-term environmental damage.

What Questions Do Economic Systems Answer Regarding Scarcity?

1. The three key questions it answers are:
   1. What to produce? (food, education, weapons, renewable energy)
   2. How to produce? (labour-intensive or capital-intensive, sustainable or polluting)
   3. For whom to produce? (who receives goods and services, and how income is distributed)

What Social and Environmental Consequences Does Scarcity Include?

1. Because resources are limited, production choices often create trade-offs beyond economics:
   1. Producing goods can generate pollution, which uses up environmental capacity (clean air and water are scarce too).
   2. Funding one public service can reduce funding available for another.
   3. Scarce resources can increase tensions between groups over "who gets what."