Posted: July 14th, 2022

Scarcity in Daily Life and Decision Making

SCARCITY IN DAILY LIFE AND DECISION MAKING
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Scarcity in Daily Life and Decision Making
Scarcity is the gap between inadequate resources and several needs and requirements that individuals expect to meet by these resources. Therefore, individuals are forced to make decisions on how to efficiently and effectively allocate these scarce resources to meet all the needs and wants. Therefore, every resource available for business is always considered insufficient to a certain degree. The scarce resources such as money and time have an impact on people’s decisions in daily life.
In a free-market economy, most of the available resources (such as capital, labor, and land) are owned by businesses and individuals. The resource owners in the free-market economy use intentional decisions created from their self-interest to accomplish the highest personal gains from the market’s transactions and activities. In this market system, the economy is influenced by competition and self-interest as the government has very little control over the economy. The Invisible hand approach unveils that thousands or dozens of business owners operate in their self-interest. They produce services and goods that benefit both the manufacturer and consumers (Oleinik, 2015, 10). The producers who operate based on self-interest can benefit the entire economy. As a result, the economists believe in the Invisible Hand push for free opportunities for exchange and less intervention from the government.
On the other hand, there are several principles guiding choices made by individuals. The first principle states that choices are essential due to scarce resources. People cannot always get what they want; therefore, they have to make choices since resources are limited and scarce (Krugman and Wells, 2010, 5). The second principle states that an object’s opportunity cost is the actual price of that particular item. For example, the real cost of an item is what an individual forgoes to obtain something else. The principle suggests that every cost is an opportunity cost since each choice made by an individual means giving up other choices. The third principle posits that people respond to incentives and exploit opportunities for people to make themselves more contented. People always grab opportunities offered to them to make themselves better. The last principle states that most important decisions involve choices with fine margins. Trade-offs in such decisions are paramount when comparisons are made between cost and benefit. Several vital decisions comprise either-or choices while others comprise how much to spend on it.
Trade-off thinking is always encouraged by the scarcity of resources. An individual cannot have everything at a time. That is, having a particular thing means lacking the other thing. Performing one activity means ignoring and neglecting the other. Therefore, trade-off thinking fits in the decision making it helps in determining the best alternative to forgo. Policies encouraging equity always led to reduced efficiency in the market. On the other hand, our choices are prioritized by opportunity cost, helping individuals make more effective decisions.
The Production Possibility Frontier describing an increase in opportunity cost is essential in determining an object’s real cost. For the Boeing Company to increase its productivity in small jets, it must forgo the production of Dreamliners (Krugman and Wells, 2010, 30). To manufacture the first twenty small jets, Boeing Company must reduce the production of Dreamliners by five and produce additional twenty small jets; the company must stop producing twenty-five more Dreamliners. This example illustrates how opportunity cost shapes decision making.
In conclusion, there are limited resources in the business world compared to numerous needs to be met by these few resources. Therefore, proper decision-making and choices must be practiced to effectively allocate these scarce resources to meet people’s needs and wants.
References
Krugman, P. and Wells, R., 2010. Microeconomics (for AP). New York: Worth Publishers.
Oleinik, A.N., 2015. The invisible hand of power: An economic theory of gatekeeping. Routledge.

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