Read this section to learn about the basic problem of scarcity and the study of economics. Be sure to click through to read each of the pages in this section. As you read, reflect on the things that society needs and the resources that are needed for production like natural resources, money, labor, etc. Every society needs to take into account the problem of scarcity, and that decisions are needed to choose from producing one thing over another. An example is choosing between having a natural wild environment by not developing a piece of land, or developing that land for housing.
Think about all the things you consume: food, shelter, clothing, transportation, healthcare, and entertainment. How do you acquire those items? You do not produce them yourself. You buy them. How do you afford the things you buy? You work for pay. Or if you do not, someone else does on your behalf. Yet most of us never have enough to buy all the things we want. This is because of scarcity. So how do we solve it?
Every society, at every level, must make choices about how to use its resources. Families must decide whether to spend their money on a new car or a fancy vacation. Towns must choose whether to put more of the budget into police and fire protection or
into the school system. Nations must decide whether to devote more funds to national defense or to protecting the environment. In most cases, there just isn't enough money in the budget to do everything. So why do we not each just produce all of the
things we consume? The simple answer is most of us do not know how, but that is not the main reason. (When you study economics, you will discover that the obvious choice is not always the right answer – or at least the complete answer. Studying economics
teaches you to think in a different of way). Think back to pioneer days, when individuals knew how to do so much more than we do today, from building their homes, to growing their crops, to hunting for food, to repairing their equipment. Most of us
do not know how to do all – or any – of those things. It is not because we could not learn. Rather, we do not have to. The reason why is something called the division and specialization of labor, a production innovation
first put forth by Adam Smith, Figure 1.3, in his book, The Wealth of Nations.