Comprehensive Introduction to Economics and Scarcity

Fundamental Definitions and the Nature of Economics

Economics is defined as a social science primarily concerned with the utilization of scarce resources to achieve the maximum satisfaction of the unlimited wants of society. It serves as the study of how societies deploy scarce resources to produce various commodities and distribute them among different individuals. At its core, economics is the study of the production, distribution, selling, and use of goods and services. It examines the methods by which people use their limited resources in an attempt to satisfy their unlimited wants. As a social science, economics specifically focuses on how individuals make choices when faced with the task of allocating these scarce resources.

The term "economics" finds its origin in the Greek word "Oikonomus," which translates to "household management." Adam Smith is universally recognized as the Father of Economics. Another prominent figure, Alfred Marshall, described economics as the study of mankind in the ordinary business of life. Marshall's perspective emphasizes that the field examines the shared social and individual actions most closely connected with the attainment and use of the material requisites of well-being. Economics is deeply integrated into daily life, addressing central concerns such as sustaining basic needs—like purchasing shoes while applying for a job—and managing the budget and allocation of available goods.

The Central Economic Problem: Scarcity

Scarcity is the fundamental economic problem that necessitates the practice of economics. It is defined as a condition where there are insufficient resources to satisfy all the needs and wants of a population. Because resources are limited and human wants are unlimited, individuals must engage in choice and decision-making to maximize the use of those resources. Needs are categorized as the essentials required for life, such as food and shelter, while wants are the various desires for non-essential items. There are two primary types of scarcity: absolute scarcity and relative scarcity.

Absolute scarcity refers to "the hard ceiling" where things are strictly limited by physics, nature, or time. These are resources that cannot be increased regardless of financial power. Examples include an exam countdown timer where a teacher gives students exactly $60\,\text{minutes}$; no student can purchase an extra $10\,\text{minutes}$ from the universe. Another example is the limited front-row seats at the Philippine Arena; the venue cannot physically expand its walls for extra VIP spots. One-of-a-kind collectibles, such as a limited-edition autographed photocard or a vintage pair of sneakers where only $100\,\text{pairs}$ were produced and the factory is closed, also represent absolute scarcity. Finally, prime commercial real estate in bustling areas like Bonifacio Global City (BGC) or Makati is absolutely scarce because new land cannot be manufactured in the middle of a metropolis.

Relative scarcity is described as the "right thing at the wrong time or place." This occurs when resources are technically abundant but feel scarce due to high demand, location issues, or temporary supply bottlenecks. Examples include booking an Angkas or Grab ride during a typhoon at $5:00\,\text{PM}$ on a Friday; the riders exist, but they are relatively scarce for those $2\,\text{hours}$. The "Chicken-sad" phenomenon in fast food occurs when a store runs out of food due to an unexpected rush or delivery delay, even though chicken is abundant on farms. School Wi-Fi during a lunch break at $12:00\,\text{PM}$ becomes relatively scarce when $500\,\text{students}$ log on simultaneously, slowing the connection. Similarly, the school uniform bookstore in August may run out of a specific size temporarily, even though more can be sewn by the tailor later.

Economic Resources and Opportunity Cost

Economic resources, also known as factors of production, are the inputs used to produce goods and services to satisfy human wants. These are categorized into four main types: land, labor, capital, and entrepreneurship (enterprise). Scarcity of these resources forces the consideration of opportunity cost, which refers to the value of the best foregone alternative when a choice is made.

Land encompassess the soil and all natural resources found in nature that are not man-made, including raw materials and natural processes. Owners of land receive a specific form of payment known as rent. Labor refers to the physical and human effort exerted in production. This includes manual workers such as construction workers, machine operators, and production workers, as well as professionals like nurses, lawyers, and doctors. Capital represents man-made resources used in production, such as machineries, equipment, processed materials, and buildings. The owner of capital earns income in the form of interest. Entrepreneurship or enterprise refers to the human resource involved in organizing the other factors and bearing the risk of production.

Branches of Economics and Key Metrics

Economics is divided into two primary branches: microeconomics and macroeconomics. Microeconomics studies the decisions and choices of individual units, such as households, consumers, and specific businesses. It examines how these individual decisions affect the prices of goods in the market and is often referred to as Price Theory. The driving goal of microeconomics is optimizing utility (satisfaction) for consumers and profits for businesses. It addresses questions such as how a price hike on coffee might affect Starbucks sales.

Macroeconomics is concerned with the overall performance of the entire economy as a whole. It involves key players like governments, central banks, and global markets. The core concepts of macroeconomics include national debt, monetary policy, unemployment rates, and Gross Domestic Product (GDP). Its driving goal is maintaining steady economic growth and stability. Macroeconomics asks broad questions, such as how changing the interest rate affects national inflation.

Two critical measures of national economic activity are Gross Domestic Product (GDP) and Gross National Product (GNP). GDP measures the total value of all goods and services produced within a country's geographic borders over a specific period, such as a year or quarter. It does not matter if the company is foreign-owned; for example, if a German automaker builds SUVs in South Carolina using American labor, it counts toward US GDP. GNP measures the total value of all goods and services produced by a country's permanent residents and businesses, regardless of their physical location. For instance, if an American consulting firm completes a project in Tokyo and sends the profits home, it counts toward US GNP, but not US GDP, because the physical work occurred in Japan.

Basic Economic Problems and Economic Systems

All societies must confront three basic economic problems. The first is "What to produce and how much?" Society must decide which goods and services are necessary and determine the exact quantity to meet the population's needs. Governments are often entrusted with these decisions, such as allocating public funds between national defense and social welfare. The second problem is "How to produce?" which refers to the production method, resource mix, and technology used. This involves determining the most efficient use of labor, capital, and technology. The third problem is "For whom to produce?" which addresses the target market, such as whether goods are for the young or old, male or female, or low-income versus high-income groups.

To address these problems, societies adopt different economic systems. A Traditional Economy bases decisions on long-standing traditions and practices passed down through generations. These methods are often stagnant and not progressive. A Command Economy is an authoritative system where decision-making is centralized in the government or a planning committee. Decisions are imposed on the people, who have no say in production; this system is typical in dictatorial, socialist, and communist nations. A Market Economy is the most democratic form, where decisions are made based on the workings of demand and supply. Consumer preferences are reflected in the prices they are willing to pay, which signal to producers what goods should be produced.

Questions & Discussion

True or False Assessment

1. Economics as social science has something to do with our everyday lives. (True)
2. One a man is applying a job to sustain its basic needs shoes is an example of economics as social science. (True)
3. There two branches of economics the microeconomics and the macroeconomics. (True)
4. Applied Economics is an application of conclusion from the different economic theories. (True)
5. Using economic theories, applied economics tries to address the central problem of economics which is scarcity. (True)
6. The word economics derived from the Greek word "Oikonomus" meaning household management. (True)
7. Adam Smith is the Father of economics. (True)
8. Economics is applied in in our daily lives. (True)
9. Scarcity is the central economic problem. (True)
10. To address the unlimited needs and wants of the people with the limited resources is one of the significant concerns in economics. (True)

Pre-test Multiple Choice Questions

1) It is a condition where are there insufficient resources to satisfy all the needs and wants of a population. (Answer: C. Scarcity) 2) When a good is scarce compared to its demand. (Answer: A. Relative Scarcity) 3) What are the basic economic resources? (Answer: B. Land, labor, capital) 4) It refers to the value of the foregone alternative. (Answer: D. Opportunity Cost) 5) What is this branch of Economics that is concerned with the overall performance of the entire economy? (Answer: A. Macroeconomics) 6) All societies are faced with the basic questions in the economy, which of the following is considered basic economic problem? (Answer: A. What to produce and how much) 7) It is a question on the production method that will be used to produce the goods and services. (Answer: B. How to produce the goods) 8) It talks about the target market of the goods. (Answer: B. Consumers or customers) 9) Economics is one significant subject for Senior High school, choose a reason why it is important to study Economics. (Answer: D. All of the above) 10) As a student and soon to be voter, why do you think is it important for you to choose educated politician who are in favor for the welfare of majority especially the poor? (Answer: C. They are governing bodies which formulates economic policies)

Rumbled Letter Exercises

1. SEIPRENRTE: ENTERPRISE
2. ANDL: LAND
3. RBOLA: LABOR
4. APITLCA: CAPITAL