Economic Fundamental Choices, Essay Example

Economics is termed as a knowledge body that deals with how societies try to resolve their problems of infinite wants with the resources around them being limited and scarce. An economic system can be termed as set of techniques and principles by which the societies organize and make decisions on the allocation and ownership of these economic resources. A free-enterprise economic system is whereby resources are privately owned and every individual in the society has a rational self-interest in the good maximization. Another economic system is the pure-communist system where resources are publicly owned by the state and control of these resources is regulated by the government in order to minimize the wealth inequalities in the society (Lipsey et al, 1990). A resource is said to be scarce when it is not sufficient to satisfy the individuals’ wants which are endless. Economic decisions are therefore made. Individuals in all societies have unlimited wants.

Choices in the society arise due to the fact that the resources are limited and scarce. This world we live in is one of scarcity because the resources are not enough to satisfy the individual’s wants. As a result of this scarcity, we must make choices on what to buy and what not to.  When choices are made, there arise opportunity costs. This is what is given up after a choice has been made. It is the benefit forgone from the best unselected alternative.

Due to these finite resources, businesses need to also determine what, when and where to produce in order to satisfy demand. The consumers are taken to be the principal influences of this choice. The goods they want must also be contained within their parity of purchasing power as well as their budgets. They must take into account these three factors: what and how much is to be produced, for whom it will be produced, and how it will be produced. There lies different ways to produce millions of various outputs given the inadequate resources in the society. Mechanisms must exist that differentiates between the items to be produced and those that remain as the individuals’ unfulfilled needs or as unexploited inventions. Choices must also be made to pick the most efficient input mix to be applied in the production of the item. This is because there are various ways to produce one product. The place of production must also be taken into account as well as how the inputs are organized and brought together.

Individuals must make decisions about what they want to purchase. But their willingness to pay as well as their ability to pay for the service or good is what determines the choice. Money or income distribution determines the “who gets what” notion. This is determined by various factors such as consumer’s income, item prices as well as those of related items, preferences or tastes of the consumer, the expectations by the consumer about the future income and prices, human and non-human possessions among other factors (Goodwin et al, 2009).

The society is also rational in that it balances the benefits against the costs of an action before actually doing it. Individuals are assumed to select the best option in accordance to stable preference constraints and functions that face them. It is vastly assumed that the individuals’ behavior pattern in the societies is a reflection of the choices they make as they try to minimize their costs and at the same time attain benefit maximization (Allingham, 2002). This rational behavior is reflected in economic theory by various instances. For example, individuals want to own the most useful item at the lowest price and leave out the rest which have a higher price tag.

References

Allingham, M. (2002). Choice Theory: A Very Short Introduction. UK: Oxford.

Goodwin, N., Nelson. J., Ackerman, F. & Weissskopf, T. (2009). Microeconomics in Context, 2d ed. New York: Sharpe.

Lipsey, R.G., Steiner, P.O., Purvis, D.D., and Courant, P.N. (1990). Economics. New York: Harper & Row.