Economy Fundamentals: Scarcity, Needs, Goods & Services

Economy: Managing Resources and Scarcity

Economy comes from Greek and means "to manage the house." It deals with meeting major needs in the best possible way using certain means or resources. These resources are scarce in relation to people's needs. This is called economic scarcity.

Understanding Economic Scarcity

Economic scarcity is the feeling of a lack of resources relative to people's needs. This should not be confused with physical shortage or poverty. Developed countries abound in goods and wealth, while underdeveloped countries often experience economic scarcity. This refers to insufficient resources to meet our needs, unlike physical poverty which refers to limited physical access to resources.

Economic scarcity features:

• Universal: It affects everyone, though differently.
• Relative: The quantity of available resources is inadequate when compared to existing needs.

The economy is the science that discusses how to deploy scarce resources to produce and distribute goods and services among the different members of a society.

Needs, Goods, and Services Defined

Understanding Human Needs

A need is the feeling of lacking something that needs to be satisfied. There are two types:

• Primary Needs: These are considered essential because they are linked to the human condition and, therefore, directly related to issues such as subsistence and development.
• Secondary Needs: These are more dispensable. The satisfaction of these needs increases welfare, and they vary significantly across different times and cultures.

Classifying Goods and Services

Human needs are met through goods and services. Goods are material, and services are immaterial. They are classified according to:

• By Degree of Scarcity:

  • Free Goods: These are unlimited, such as air.
  • Economic Goods: These have a price because they are useful, scarce, and transferable.

• By Function:

  • Consumer Goods: These directly meet human needs.
  • Capital Goods: These indirectly meet human needs, as they are used to produce other goods.

• By Degree of Transformation:

  • Intermediate Goods: These are still unable to meet the need for which they were created and must undergo further transformation.
  • Final Goods: These are ready to be used.

• By Access to Goods:

  • Public Goods: These are goods where no one is excluded from their use.
  • Private Goods: These are goods that exclude one or more persons from their use.