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Microeconomic Resources: Scarcity & Utility

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  • 0:00 Purpose of Economics
  • 1:01 Scarcity
  • 2:46 Utility
  • 4:20 Lesson Summary
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Lesson Transcript
Instructor: Kevin Newton

Kevin has edited encyclopedias, taught middle and high school history, and has a master's degree in Islamic law.

For economics to work, we must assume that resources are scarce and that people will work to secure the greatest utility possible. This lesson explains both scarcity and utility and what they mean for people everywhere.

Purpose of Economics

Economics is an applied science, just the same as medicine or engineering. Medical professionals strive to find better ways to treat disease and help people live better, healthier lives, all the while knowing that they will probably never treat the root cause of the issue, the ultimate frailty of the human body. Likewise, engineers build factories, bridges, and computers that they know will be out of date, but that nonetheless solve a practical purpose at the present.

Economists also fight an unbeatable enemy, but one that governs far more than health or mechanics. Instead, economists are tasked with addressing the issue of scarcity. Scarcity states that nothing exists in infinite quantities, and it is absolutely essential to understanding economics. Luckily, economists don't have to attempt to address scarcity blindly. Instead, they are armed with the idea of utility, which helps people understand how useful something is to us.

Scarcity

Let's talk about the bad news first. Scarcity exists. I don't care what resource you're talking about, it's scarce. Food? Scarce. Air? Scarce. Diamond rings? Very scarce. In fact, maybe this whole scarcity thing isn't so bad.

Seriously, we tend to make bad decisions when we forget that scarcity exists. When we forgot that air and water were scarce resources, we polluted them, and now we have to spend more of our scarce resources to fix those mistakes. When companies treat their employees as an infinite resource that can be replaced at a whim and use this as an excuse to lower wages, they often find that no work is getting done by anyone, since all their employees are on strike. That means that the company has to spend its resources to stay afloat during the strike rather than to produce more goods to sell.

Scarcity is literally everywhere, and it's not likely to disappear anytime soon. In fact, location has a great deal to do with scarcity. When you're at the grocery store, you've no doubt seen drinks on sale in the cooler for around two dollars. You occasionally get one, knowing full well that if you were to exit the line and walk to the back of the store, you could get much more bang for your buck. However, because cool drinks are a scarce good, the store can charge more for them.

Granted, we can always increase efficiency, or our ability to make more of something with a given amount of inputs. However, that greater efficiency is still not infinite. Until such time that science gives us a machine that produces infinite amounts of everything instantaneously and moves it instantaneously to any place, I can absolutely assure you that scarcity will always exist.

Utility

Don't worry, it's not all doom and gloom for economists. Luckily, we have a very useful tool to help determine a pecking order of priorities. While every resource experiences scarcity, every resource also has a utility. Utility is the term that economists use to describe the usefulness of something to someone. Utility gives us a very useful way of figuring out how to use scarce resources in the most productive ways.

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