12.9 Scarcity and Choice impact economic activity.


12.9.1 Scarcity and choice impact economic decisions of individuals, families, and


communities.



Scarcity and choice impact economic decisions of individuals in many ways. An Individual makes economic choices based on their needs and wants, which reflect their desires for certain goods and services. Since a person’s wants are unlimited and their resources, such as money, are limited, they are forced to make a decision—to choose how they are going to spend their money. Scarcity causes a person to have to figure out how to allocate their resources in order to satisfy the greatest number of their needs and wants. For example, a person has twenty dollars and they could either buy the nineteen-dollar Express shirt they have been wanting or the ten-dollar book they need to pass the upcoming English test. Since their money is scarce they have to choose only one. It would be in their best interest to buy the book because they need it more than they do the shirt. They could, however, get a similar shirt on sale someplace else for fourteen dollars and get the same book at a used bookstore for five dollars. Given that they allocated their resources effectively they were able to get both their need and their want.


Scarcity and choice impacts economic decisions of families in numerous ways as well. A family, resembling an individual, has a limited amount of resources which causes them to have to make decisions based on their needs and wants, which reflect their desires for certain goods and services. Most of the time however, unlike an individual, the way they allocate their resources and the choices they make, can be more serious. A family, which is made up of a group of individuals acting as one has to consider the needs and wants of not only themselves but the other members of their family. The way they allocate resources depends on the urgency of each person’s needs and wants and how it affects everyone as a whole. Groceries and water come before cable TV or a vacation because food and water are needs of the family and each individual that make up the family while cable TV and a vacation are only wants. Most of the time families have to choose needs before wants due to scarcity because each person in a family unit depends on each other and the decisions that are made.


Scarcity and choice also impacts economic decisions of the community. In a community limited amounts of resources causes people to make decisions based on their needs and wants, which reflect their desires for certain goods and services. To distribute resources effectively, an economic system or a society must address three basic economic questions: what to produce, how to produce and for whom to produce. The answers to these questions help a society determine the best distribution of resources to meet its needs and wants. Since a society’s needs and wants can never be met completely they must determine the urgency of each. They must then decide how to allocate their resources effectively due to their scarcity. Lastly they must agree on how to distribute the goods and services they produce while considering who will consume the goods and services.


12.9.2 Families must make choices as they budget their income and expenses.





Families must make many choices as they budget their income and expenses. All financial planning begins with a spending and saving plan, or budget. The budget lists fixed expenses and flexible expenses. Fixed expenses are those payments that remain constant from month to month, such as payments for mortgage and insurance premiums. Flexible expenses can vary from month to month. Examples include expenders for pizza and movies. The budget should also include the amounts that a person is willing and able to set aside for saving and investing.


12.9.3 Money, goods, and services link households and businesses in the U.S. economy:


Households and businesses in the U.S. are linked together through money, goods and services. As economic actors, households and business distribute goods and services through a system of exchange. Goods and services are assigned a value or worth that can be expressed in terms of money. Money is an item readily accepted by people in return for goods and services.