Understanding Economics: Managing Scarcity and Choices

What Is the Economy?

Often, when you are in high school, you feel that many subjects will not help you in your future life. It is common to hear students complaining about various subjects because they do not see a direct application to their everyday life—asking, "When am I going to use this?" Luckily, this does not happen with economics, a subject that will allow you to solve many of your real-world problems.

But what is economics? The late José Luis Sampedro would tell you that you are the economy. However, you likely want a more elaborate answer. Let us begin.

The Necessity of Choice

Because our resources (such as money and time) are scarce, but our needs are unlimited, we must choose how to use these resources and which needs to cover.

• Financial Choice: If you only have 20 euros, you must choose between buying that shirt or those pants you liked.
• Time Management: If you have an economics exam tomorrow and your friend suggests going to a party, you must choose between studying or going out.

In both cases, you can only meet one need. This is where economics emerges: it is the science that helps you decide how to use your limited resources in the best way possible to satisfy as many needs as you can.

Resources Are Scarce

Regrettably, the resources available to any family are insufficient to meet all their needs. If you go to the mall, there are hundreds of products you wish to buy. You might want the latest mobile phone or new clothes, while your family might want a better TV or a new refrigerator.

It is not just money that is lacking; time is also a scarce resource. Even if you had unlimited money, the day only has 24 hours, and you often cannot satisfy two needs at once.

The Needs Are Unlimited

The saying, "The more you have, the more you want," perfectly explains human behavior. The problem is that when we meet one need, a new one always arises. Needs reproduce. We always want a better car, a bigger house, or more clothes.

You might think that millionaires can meet all their needs without problems because they have plenty of money. However, as their time remains limited, they cannot meet all the needs they want at the same time.

Key Takeaways

From this definition, we must draw two key ideas:

• Resources are scarce.
• We must make choices.

If there were no shortage of resources and no need to choose, economics would not exist, as there would be nothing to manage.

People give so much value to time that we are willing to pay money for it. If we decide to buy a bag of potatoes at a more expensive corner shop instead of going to the supermarket, it is because we value the time we save. Similarly, many families decide to hire someone to clean their home because they value the time and effort saved more than the money spent.