I did the best I could with what I had.

Thurgood Marshall (1908-1993) Supreme Court Justice

      Human wants are unlimited andcan never be completely fulfilled. Whether your goal is as mundane as luxurious consumption or as lofty as world peace, you are constrained because you can only do the best you can with what you have. Production underpins all income and spending. But resources and time are limited, while our wants are virtually unlimited. Pitting our insatiable wants against our limited time and resources, as shown in Figure 1, yields the basic economic problem—scarcity.

 

      Scarcity occurs because human wants exceed the production possible with our limited time and resources.

 

      Scarcity necessitates trade-offs; you can select only a few of all available alternatives. For example, in only two hours, you cannot go hiking, study for a test, and see a film. Thus, scarcity forces us to choose, a fact reflected in a broad definition of economics:

 

      Scarcity occurs because limited resources and time yield only limited production and income, but our wants are virtually unlimited. Output is produced by using knowledge (included in technology) to apply energy to materials. Production, in turn, generates the income people spend on the limited goods and services available.

 

      Commodities are tangible goods that can be bought and sold, such as cars or DVDs. Such services as haircuts or police protection are also goods because they add to our wellbeing. Something desirable but not scarce is a free good. Warmth from sunlight so that we don't all freeze is a free good. Identifying other truly “free” goods is difficult because our enjoyment is constrained by time and access. For example, you can have all the seawater you want at nearly zero cost—but only if you are on the beach and have nothing else to do with your time. Or you can freely breathe all the air your lungs will hold (accepting current pollution levels). But even impure air may be scarce for scuba divers or victims of flat tires. Garbage, an economic bad (things that reduce happiness) is, unfortunately, not scarce, so trash collection is a scarce good.

      That virtually nothing people enjoy is truly free is reflected in the saying, “There is no such thing as a free lunch” (TINSTAAFL).[1] Limited time and resources constrain production so that our insatiable desires for goods are never fully satisfied. Even billionaires face scarcity—of their time or health, for example, or in their desires for fame, inner peace, or a cleaner environment.

      For a specific individual, possession of a unit of a given good has (a) value in use, or (b) value in exchange. Suppose your idea of heaven is shredding down a steep mountain slope over new powder. Your snowboard’s value in use is ultimately subjective. Now suppose that you own a snowboard factory, but hate the cold, the snow, and everything else associated with actually using a snowboard. A snowboard would still be valuable to you because of its value in exchange—the other things you could buy if you sold it. Value in exchange is the motivating factor behind the production of goods by firms, and is the foundation for most economic transactions.

---