Scarcity is one of the key concepts of economics. It means that the demand for a good or service is greater than the availability of the good or service. Therefore, scarcity can limit the choices available to the consumers who ultimately make up the
economy. Scarcity is important for understanding how goods and services are valued. Things that are scarce, like gold, diamonds, or certain kinds of knowledge, are more valuable for being scarce because sellers of these goods and services can set higher prices. These sellers know that because more people want their good or service than there are goods and services available, they can find buyers at a higher cost.
Scarcity of goods and
services is an important variable for economic models because it can affect the decisions made by consumers. For some people, the scarcity of a good or service means they cannot afford it. The economy of any place is made up of these choices by individuals and companies about what they can produce and afford.
The goods and services of any country are limited, which can lead to scarcity. Countries have different resources available to
produce goods and services. These resources can be workers, government and private company investment, or raw materials (like trees or coal). Certain limits of scarcity can be balanced by taking resources from one area and using them somewhere else. Sellers like private companies or governments decide how the available resources are spread out. This is done by trying to strike a balance between what consumers need or want, what the government needs, and what will be an efficient use of resources
to maximize profits. Countries also import resources from other countries, and export resources from their own.
Scarcity can be created on purpose. For example, governments control the printing of money, a valuable good. But, paper, cotton, and labor are all widely available across the world, so the things required to make money are not themselves scarce. If governments print too much money, the value of their money decreases, because it
has become less scarce. When the supply of money in an economy is too high, it can lead to inflation. Inflation means the amount of money needed to buy a good or service increases—therefore money becomes less valuable, and the same amount of money can buy less over time than it could in the past. It is therefore in a country’s best interest to keep its paper money supply relatively scarce. However, sometimes inflation can help an economy. When
money is less scarce, people can spend more, which triggers a rise in production. Low inflation can help an economy grow.
Banks
A commercial bank is a particular type of financial institution that can accept deposits, provide checking to the public, and make loans.
Barriers to Trade
Barriers countries set up for international trade, usually on imports, such as tariffs, excise taxes, and quotas.
Barter/Trade
The direct trading (barter) or any exchange (trade) of goods and services between people without the use of money.
Benefits to Trade
The net benefits to entities such as countries from open voluntary trading with each other.
Budgeting
A list of estimated expenditures for a given period along with ways to pay for them.
Capital Resources (capital goods)
Goods made by people and used to produce other goods and services (machines and factories).
Choice
Deciding between two or more possible alternative objects or actions; called an economic choice for decisions among goods, services, or resources.
Circular Flow
A model of an economy showing the interactions between households and business firms as they exchange goods and services and resources in markets.
Comparative Advantage
Describes a basis for specialization and trade between people or countries based on differences in their resources distribution.
Competition
Rivalry among sellers to sell (supply) goods and services, or among buyers to buy (acquire) a service or good.
Consumers/Consumption
People whose wants are satisfied by using goods and services/using goods and services.
Cost-Benefit Analysis
Analysis of the comparison of the cost of an action with the benefits of that action.
Cost of Production
The total paid for all resources used by a business in producing goods and services. The owners of the resources receive the payment.
Credit
The purchase of something using a promise to pay in the future.
Decision-making
Making an economic decision by comparing the costs and benefits of all of the alternatives.
Demand
A schedule of how much consumers are willing and able to buy at each possible price during some time period.
Division of Labor
The process whereby workers divide up a job, so each performs only a single task or very few steps of a major production task, as when working on an assembly line.
Economic Goals
The objectives that economies pursue, such as full employment, stability, economic growth, and efficiency.
Economic Indicators
Measures constructed to show where the overall economy has been, is now, or is going.
Economic Institutions
Customs, behaviors, or organizations that are commonly found in an economy. Often used to refer to specific agencies or organizations that have a particular economic objective.
Economic Systems
Way in which a society decides and organizes production, distribution and consumption of goods and services of an economy, usually described as traditional, market, command, and mixed economies.
Entrepreneurs
The human resource (person) who assumes the risk of organizing the other productive resources to produce goods and services.
Equilibrium Price
The market clearing price at which the quantity demanded by buyers equals the quantity supplied by sellers.
Exchange Rate
The price of the currency of one country in terms of another currency, e.g dollars per euro.
Factors of Production
The resources used to produce goods and services, which are labor, capital (machines and buildings), and land.
Federal Reserve
The central bank of the United States that makes policy for the money supply, credit, and interest rates.
Financial Institutions
An institution (e.g. commercial bank, savings and loan, investment bank) that collects funds (from the public or other institutions) and invests them in financial assets.
Fiscal Policy
Policy done by a central spending authority of the government to support the economy, relating to spending and taxes.
Goods/Services
Objects (goods) or services (activities) that can satisfy people's wants.
Human Capital
The skills, talents, education, and experiences that a person embodies that are useful as a labor resource.
Human Resources (labor)
The quantity and quality of human effort directed toward producing goods and services (also called labor).
Incentives
Things that motivate and influence the behavior of households and businesses. Prices, profits, and losses act as incentives for participants to take action in a market economy.
Income
The amount of money (wages, salaries, profits) received in a specified period in exchange for providing labor or selling goods and services.
Income Distribution
The way national income is divided among households in the economy.
Income Tax
Taxes paid by households and business firms based on the amount of income they receive.
Inflation
A persistent rise in overall prices.
Interdependence
People depend on each other to provide goods and services; occurs as a result of specialization of production.
Interest
The amount charged by a lender to a borrower for the use of money for a specified time.
International Trade
Trading, buying and selling, between and among countries.
Investment in Capital Resources
Business purchases of new plants (buildings) and equipment.
Investment in Human Resources
Activities that increase the skills and knowledge of workers.
Market Economy
An economic system where most goods and services are exchanged through private transactions by private households and businesses. Prices are determined by buyers and sellers making exchanges in private markets.
Market Failures
Situations in which the outcome of the market is not efficient from society's point of view, e.g., the market participants might have no market incentives to avoid polluting the environment.
Markets
Any setting where buyers and sellers exchange goods, services, resources, and currencies.
Monetary Policy
Policy done by a central bank to support the economy, relating to the supply of money, credit, and interest rates.
Money/Medium of Exchange
A medium of exchange, which is a good (like shells or metal coins or pieces of paper) that can be used to buy other goods and services.
Natural Resources
Gifts of nature that can be used to create goods or services, and are present without human intervention. Land is the main natural resource.
Opportunity Cost
The next best alternative that must be given up when a choice is made. Not all alternatives, just the next best choice.
Prices
The value of a good or service stated in money terms.
Private Property/Property Rights
Land and other belongings legally owned by a person or group which can be kept for their exclusive use.
Producers/Production
People who use resources to make goods and services, also called workers./ The making of goods and services using resources.
Productivity
The amount of goods or services that are produced per worker (or sometimes, per other input), or output per person.
Productivity
The ratio of output (goods and/or services) to input, or the amount of output produced per unit of productive resources over a period of time
Profit
The difference between the total revenue and total cost of producing and selling a good or service in a business; entrepreneurial income.
Property Tax
Taxes paid by households and businesses based on the value of land and buildings.
Public Goods
Goods and services that are provided by the government. They are often goods that individuals don't buy enough of, but provide everyone benefits if widely consumed, such as education or national defense.
Resources: Natural/Human/Capital
Anything used to produce goods and services; all natural, human and human-made aids to the production of goods and services, also called productive resources.
Risk Management
The identification, assessment, and prioritization of risks of financial assets in a portfolio.
Role of Government
The economic actions and results of government activities.
Sales Tax
Taxes paid on the value of goods and services people buy.
Saving
Not spending all of one's income; the part of income not used for consumption.
Scarcity
Resources are limited, so people cannot have all the goods and services they want.
Shortage
The situation resulting when the quantity demanded exceeds the quantity supplied at the current price of a good, service, or resource.
Specialization
Production can often be best done by several or many people where each person specializes: does only a part of the job—the part that the person is skilled to do.
Spending
Purchase of currently produced goods or services; using income to buy for consumption.
Supply
A schedule of how much producers are willing and able to produce and sell at each possible price during some time period.
Surplus
The situation resulting when the quantity supplied exceeds the quantity demanded at the current price of a good, service, or resource.
Taxes
Required payments of money made to governments by households and business firms.
Trade/Exchange
Trading goods and services with people for other goods and services or for money. When people exchange voluntarily, they expect to be better off as a result.
Trade-offs
Giving up one thing or activity to get some of another.
Unemployment
The situation in which people are willing and able to work at current wages but cannot find jobs.
What term describes using resources to produce the maximum amount of goods and services?
Economics is the study of using resources to produce goods and services as effectively and efficiently as possible to satisfy the needs and wants of consumers.
What are the resources used to make goods and services called?
In economics, factors of production are the resources people use to produce goods and services; they are the building blocks of the economy. Economists divide the factors of production into four categories: land, labor, capital, and entrepreneurship.
Which term refers to a resource used to produce a good or service for sale?
Factors of production is an economic term that describes the inputs used in the production of goods or services to make an economic profit. These include any resource needed for the creation of a good or service. The factors of production are land, labor, capital, and entrepreneurship.
What do you call the efficient distribution of available resources?
Allocational efficiency represents an optimal distribution of goods and services to consumers in an economy and an optimal distribution of financial capital to firms or projects among investors.