Studying economics and its importance in erasing scarcity
Economics refers to the science that studies how human beings can make decisions when faced with scarcity. We can make these decisions based on an individual, familial, business, and societal level. Studying economics is of national as well as individual development because it helps an individual understand so many social as well as economic phenomena that happen around him. In this article, we will have a look at some of the most important concepts in economics.
What does scarcity mean in economics?
People who are just introduced to economics often ask the question, what is scarcity in economics? When observed, one can notice that the concept of scarcity is an unavoidable part of life. As a definition of scarcity in economics, we can say that scarcity occurs when human wants for services, goods, and resources surpass what may be available. Tools, labour, raw materials and other resources are required to manufacture the services and goods we require, but they are in limited availability. The scarcest of all resources is, without doubt, time- only 24 hours are available in a day to obtain the needs that we require. The number of resources existing is also finite, adding to the probability of scarcity.
The concept of scarcity in economics
According to the Bureau of Labour Statistics workforce in the US consisted of over 158 million people in 2016. The area of the US is roughly over 3 million square miles. While being large figures for important resources, they are very limited. Hence, their services and goods are also limited and diminishable. Scarcity is a serious problem because of this disparity between finite resources and infinite needs and wants.
We all know that the concept of scarcity is a pertinent problem; the following facts or truths are testament to this:
- Not everybody has a proper household to live in
- Not everybody has access to healthcare institutions
- And not everybody has food to eat.
Individuals and families are everywhere who are impoverished, homeless, and hungry. The root cause of this is scarcity. A deeper understanding of scarcity is crucial to comprehending economics.
Let's define the term scarcity in economics on a deeper level.
Every good and service we consume is bought by us, with the money we earn by working. Yet, we cannot purchase all we require due to scarcity.
At every level of society, people have to make decisions on how to spend money judiciously so that life will be tension free. Whether it's a family, institution or government, these levels are supposed to decide how to spend their resources. For example, a nation must decide whether to channel resources to improve its defence capabilities or use them to conserve the environment. Another problem is that many of us cannot produce the goods we consume.
In yesteryears, people had the necessary skills to live and exist as individuals with productive capabilities such as growing crops, hunting and scavenging for food etc. Still, this phenomenon is unavailable now. This is because we don't need to learn how to produce them. This is because of the concept of division of labour, or the specialisation of labour, an innovative form of production introduced by Adam Smith when he wrote his The Wealth of Nations.
As a branch of study, economics began when the father of Economics, Adam Smith, wrote and published The Wealth of Nations in 1776. Smith was one of the first scholars to write about economics comprehensively. He introduces the division of labour in the book's first chapter. This concept means that a group of people does the production or service of a good, rather than one person doing the entire job.
To elaborate on his economic concept, Smith divided the task of manufacturing a pin into around 18 tasks. This showed that even producing a small and simple object such as a pin is an uphill if it is just a single person working.
The businesses existing today divide tasks. For instance, a restaurant separates the task of cooking food, serving meals, kitchen help, waiter, janitor and manager etc., between its employees. Also, the restaurant needs to have connections with food suppliers, kitchen equipment, furniture dealers, and the like. There are hundreds of job posts in a complicated, complex enterprise like a manufacturing factory.
Increasing production through dividing labour
Employees provide a better output when the duties relating to manufacturing services or goods are separated. Smith observed that when we divide labour, the number of goods produced exceeds when one person executes all the tasks to produce a good. According to Smith, there were three reasons for this-
This permits workers to divert and concentrate their attention on the elements of the manufacturing procedure in which they have specialised. Individuals are skilled in different domains and have various interests and talents. They have an edge on their job over others because of their specialisation. These specialisations are made possible by educational choices based on their talents and interests. For some services and goods, geography decides the specialisation. For instance, in a popular tourist spot, it would be effortless to attract customers to a hotel or lodge then, say, in a remote rural area. Specialisation means that people skilled in a particular domain will become more productive and work more efficiently. It would be better than a person who does every task in the manufacturing process, a few in which they may not be skilled or good.
Specialisation as a strategy
Specialising in a certain domain helps to manufacture faster while producing much better-quality goods. Workers like stylists, doctors and surgeons are a testament to how repeatedly carrying out one's job can make him quite skilled. These workers will also find a way to make their work lives smoother by streamlining them with more efficient work methods. This enables them to work better and faster.
We can find the same pattern in businesses. Businesses that emphasise one product rather than a lot of goods and services emerge successful in the market competition.
Specialisation is a particular domain that will allow businesses to utilise economies of scale, which refers to how the cost of producing a single unit decreases when the production level expands. The average production cost can considerably decrease if a manufacturing unit begins to produce more units than earlier. This concept of labour division results in equipping to produce more and consume more than in a scenario where individuals manufacture the services and goods themselves. Society has been able to battle the issue of scarcity with this economic concept of division of labour.
Markets and trade
Employees' payment for their work is only useful if they can spend them on services and goods they may require. The specialisation can only be meaningful if the trade is possible. It does not require one to know and understand the fundamentals of a service or good before purchasing them- for instance; a person doesn't have to comprehend the science behind manufacturing a jacket if he wants to wear one. Here, the market enables you to acquire a specific skill set and then use it to earn money; you use this money to avail the services and goods you would require or want. You do not have to acquire the skills and knowledge involved in manufacturing these services and goods to purchase them. Society in the modern age has become quite a strong economy, thanks to this system of markets and trade.
Why should you be studying economics?
Since we have a basic understanding of economics, let's observe why you should be studying economics. The study of economics is not merely a consortium of facts for memorisation; they are queries that need an answer. They are more like puzzles waiting for a solution. Economics gives us the tools necessary to solve these puzzles. Other reasons why one should pursue economics are:
- Every crisis boiling at the global level has an economic dimension. Be it poverty, global warming and geopolitical conflicts, solving them requires an understanding of the economic principles and elements behind them.
- A good citizenry requires a crucial understanding of economic factors. Citizens vote for representatives; they, in turn, vote on legislation and budgets.
- Understanding economics helps you to evolve your thought process in a more refined manner. Reading articles about economic issues is a good exercise. It will help you critically analyse the various incidents and events around you. Sieving out the nonsense from the intelligent requires a good understanding of the subject.
Economics presents before on the various choices available to solve a problem rather than dictating the answers to them.
The purpose of studying economics is to resolve the grave problem of scarcity, where the supply of services and goods does not match human beings' growing needs and wants. This procedure starts with understanding scarcity in economics and determining the strategies to counter it. Division of labour is a part of the modern economic system. The division or specialisation of labour is where people earn revenue and income by concentrating on a specific job—and then utilising that revenue to buy the services and goods to fulfil their requirements. Labour division allows people to concentrate and manufacture more. As the advantageous areas emphasise more, agents get more encouragement to invent and learn. Finally, it permits agents to utilise economies of scale.
Division of labour is effective only when people can buy what they do not manufacture. Economics and learning help you to acknowledge and critically analyse the major issues plaguing the globe today. It preps you to become a responsible citizen. It assists you in refining your thought process on topics about various domains.
Review your basic understanding of economics by asking yourselves the core concepts of scarcity, division of labour, economies of scale etc. We need to understand and find out why people get jobs only in certain areas, and why they buy services and goods, they do not produce.
- Division of labour: In this concept, we divide work into duties and tasks executed by different employees
- Economics: The science of how people make choices in the face of scarcity
- Specialisation: When firms and workers focus on certain tasks in which they have the expertise
- Scarcity: This is when the wants of humans exceed the available supply.
- Economics of scale: Where the average cost of manufacturing a service and good decreases when a production unit begins to manufacture more, or, to simply put it, when output increases.
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