Economics 101– Part 1. Scarcity and You

Economics?! Gross! Who wants to read about something so dry and dull as economics?

Keep reading, friend. You might learn something relevant to your life.

Part 1. Scarcity and You.

Let’s say you have twenty dollars in your pocket.

Let’s say that twenty dollars is all you have until next payday.

Now, what will you do with your twenty dollars?

  • Do you go to the movies with your friends?
  • Do you go out to lunch with your co-workers?
  • Do you buy your favorite band’s new CD?
  • Do you pick up a few groceries?
  • Do you put a few gallons in your gas tank?
  • Do you buy a new paperback book to read at the beach?

One thing for sure– you can’t very well do all these things with with your twenty dollars. In an ideal frugal world, you will stay home, eat peanut butter sandwiches, listen to the radio, and read a book from the library, but that’s just me.

Still, there are so many possible choices vying for your twenty dollars. Your choices are endless… yet your money is finite. That twenty dollars is all you’ve got.

This is the basic dilemma of economics– scarcity. The idea of scarcity is that people have unlimited wants and needs… yet the available resources to satisfy them are limited.

Economics is concerned with scarcity and the choices we need to make: if I choose to spend all my money on a movie, popcorn and a drink, I can’t very well gas up my car, as well. However, if I go to a cheap matinee and forgo the snacks, I have money left over to put at least some gas in my tank.

When you live within your means, you become very conscious of the choices you make.

Each time you make a choice, any number of alternate choices are given up. This is called opportunity cost. A dollar spent on one thing is a dollar you can’t spend on something else.  If you go thirty dollars over your entertainment budget, you have thirty dollars less to spend on, say, groceries.

Time is even more scarce than money. If you choose to spend the evening watching TV instead of studying for an exam, that time is gone forever. If you choose to limit your child to only one after-school activity per season, he/she might be missing out on all the other activities, but the decrease in stress may be worth it.

The concept of scarcity seems so obvious, but a lot of people just don’t get it. There’s a lot of denial surrounding scarcity. This is a major reason why credit card debt is such a huge problem– too many people view their available credit as an ATM whenever the “wants” outnumber the available dollars.

Scarcity is very real. You can’t have it all. Unless, of course, you’re Bill Gates or Warren Buffet.

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3 Comments

Filed under budget, frugal

3 responses to “Economics 101– Part 1. Scarcity and You

  1. BDO

    Nothing wrong about reading some good knowledge. I also hope people come to understand the reality of scarcity. It helps understand how precious those “cheap” dollars are.

    http://www.beatingdebt.wordpress.com

  2. Christine

    @ BDO: Knowledge is power. Thanks for reading. 🙂

  3. mjolsen

    Always glad to come across a kindred spirit! and this is a great explanation of ‘scarcity and you’.

    But what about ‘scarcity and them’? See what I mean at my post called “It’s Just Too — well — Renewable” at http://butisitpc.wordpress.com

    I will be interested to hear of your reaction.
    MJ Olsen

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