In this essay I will discuss whether scarcity is the central problem in all societies irrespective of economic system. I will also look at each different economic system, and also whether other economic problems than scarcity need to be considered. Scarcity is the excess of human wants over what can actually be produced to fulfil these wants (Sloman and Wride 2009). This means that there are infinite demands with only finite resources. The first economic system is the free market economy. In this system there is no intervention by the government whatsoever.
Everything is determined by the firms and by the households in that economy. One feature of the free market economy would be the price mechanism. This is where price reacts to a surplus of goods, or to a shortage of goods caused by scarcity. If there is a shortage of goods, with no market intervention naturally producers and consumers will meet at a new equilibrium, and prices will increase as supply decreases.
Alternatively if there is a surplus of goods, and again naturally with no market intervention, prices will decrease.
A strong feature of free market economies would be that markets are highly competitive, therefore there is strong competition between firms, this keeps prices down and forces firms to be more efficient. Also having a government which measures and impacts on an economy constantly can be very costly, but this is not a cost felt by the free market economies. Furthermore, having a free market means that there are quick reactions to a change in price by the consumer or producer.
A possible downside of the free market economy could be exploitation. This could include exploitation of workers or exploitation of consumers. This means either companies bounding together forcing workers to work for a lower wage, forcing consumers to pay more for goods as it is the only option they have. Unemployment however in this type of economic system is almost zero, as every worker finds a job at a wage they are happy to work at, as opposed to economies employing a minimum wage, forcing some people out of work.
A final major downside of the free market economy is that when economic problems arise, there is no overseeing government to correct the problem and stop the economy collapsing, the market would be left to correct the problem itself, which could cause even more problems. The next economic system is the other end of the spectrum, which is the command economy. In a command economy all decisions are made by the government about what to produce. These types of economies are rarely seen today, only really in North Korea and less so in Cuba.
They were, however, very common in the Soviet Union. In these economies all resources are owned by the state, and the state decides where is best to allocate them, this can sometimes mean sacrificing present consumption of a certain good or resource so that investment can be made for the future economic growth. Also in these economies, the tries to tackle the issue of scarcity by planning how much each firm produces, what they produce and in which way they produce it, which completely differs from the free market economy where the market is left to its own devices.
Another feature of these economies which addresses the problem of scarcity is the government allocates goods to the population, this can be based on demand or as a reward for the hardest workers, in theory causing people in general to work more efficiently, if their work effects which goods they receive. Overall the command economy could be argued to be the best way at addressing the issue of scarcity, and causing the highest long term growth, this is because in a free market economy each individual market is reaching it’s own equilibrium with no thought for the bigger picture with regards to economic growth and productivity.
Where as in a command economy the government can oversee all markets and allocate resources in the most efficient way to increase economic growth. Free market economies and command economies are both opposite ends of the spectrum. The most common type of economic system is the mixed economy. This is where decisions are made not only by households and firms, but by the government as well. This means that markets are often left to their own devices to reach equilibrium, but there is intervention if necessary, be it in the form of a minimum wage, or in stopping one firm from having a monopoly over a market.
Scarcity causes a problem for all these economic systems regardless of type. However, scarcity may not be the central problem; there are various other problems which must be considered in any of these economic systems. The first is unemployment. If there are vast amounts of unemployment then there is an insufficient amount of labour available to produce goods for consumption, therefore causing scarcity, so it could be argued unemployment is a bigger problem in some economies than scarcity itself. Another major economic problem is inflation.
If inflation becomes too high then money loses value and therefore cannot continue to be traded this near enough puts a stop to trading. It could also be argued that resource distribution is a major problem for all economic systems. This is also closely linked to the problem of scarcity as the problem of scarcity is tackled by the most efficient allocation of resources, but how this is decided depends on the type of economics system as discussed earlier. A final alternative issue other than scarcity in an economy would be wealth distribution.
Money is a scarce resource in an economy, and it is up to the government to allocate the resource fairly and with the most efficient outcome for the economy. Overall I would say that scarcity is a major problem for all economies because there is no limit to demands yet there is a limit to resources however there are many other issues that need to be considered other than scarcity alone in all economies, with differing levels of importance depending on the type of economic system. Overall I would say that scarcity is the central problem in all economies because it is that basic problem which then causes all other economic problems.
Cite this Economics Scarcity
Economics Scarcity. (2016, Nov 13). Retrieved from https://graduateway.com/economics-scarcity/