Microeconomics/Goods and Scarcity

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Goods[edit | edit source]

In economics, objects people want are called goods (tangible) or services (intangible). Goods exist or are created through value addition, and can be bought and sold at a price; this includes such things as foods, animals, computers, and jewelry. Even services, which are things people can either do or have done, are a type of good. A service might be vacuuming a room or driving someone to the airport.

Goods are usually classified into two groups. Some goods, such as food, and clothing, are things everyone needs. They are called necessities. Other goods, such as jewelry and stereo systems, are luxuries, meaning that while a person may want them very badly, they can live and function without them.

Scarcity[edit | edit source]

People have numerous wants and desires, but the resources to fulfill these wants and desires are limited. This gap between desires and resources creates scarcity. It is important to understand that goods and services are limited; there is only a finite amount of resources in the world. Of course, since there is a limited amount of goods, there may be a problem if people want more of a good than there is available. If there is less of a good than people want, it is scarce. Some goods are not scarce; if no more of a good would be consumed if it were free, it is an abundant or free good. This means that there is enough, or more than enough, of the good in question.

Scarcity is sometimes referred to as the fundamental fact of economics. There are not enough goods to fulfill all of the wants that people have. This has been true in the past, and it seems that it will remain true for the foreseeable future. Because of this dilemma, there has to be some way to partition goods among the people who want them. In some cultures, this problem is solved by a market pricing system, where the most serious customers are matched with the best suppliers, while in other countries it is determined by some other system, such as everyone getting an equal share regardless of needs, desires, or utility.

Review Questions[edit | edit source]

  1. Name 3 luxuries you own.
  2. Name 3 necessities you own.
  3. Is air a good, or not? Explain.
  4. Can something be a necessity for one person, but a luxury for another? Explain why or why not.
  5. What is more scarce, diamonds or wheat? How do you know?
  6. In what way are goods distributed in modern society?

Suggest Answers[edit | edit source]

  1. Diamonds, cars, departments, apple computers...etc.
  2. Food cans, pens for studies, online service for e-working...etc.
  3. Air is not a good. In the theory of economy, a "Good" is a product that contain expending "Opportunity Cost" in its production, such as rent on the factory or/and salaries for the workers, which the producer could use these expenses on other production strategies. The production of air need not any opportunity cost, thus air could not be classified as a good.
  4. Yes, it is possible that something be a necessity or sexy for one person, but a luxury for another. For example, a blue-collar family may think that a sports car is luxury for them as they may live normally without purchasing this good; but for a sports-car player, it's necessary for him/her to practice his/her skill with a sports car.