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Scarcity refers to the basic economic problem-  limited economic resources(land,  labour , capital, enterprise) but unlimited consumer wants. T his situation requires people to make decisions about how to allocate resources efficiently, in order to satisfy basic needs and as many additional wants as possible.

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Due to scarcity of resources, not all needs and wants can be satisfied and choices have to be made by consumers, businesses and governments. This leads to opportunity cost- the next best alternative foregone while making an economic decision.  For example: If an economy decides to allocate its resources to produce consumer goods instead of capital goods, the opportunity cost would be capital goods.

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Efficiency is the ratio of useful output to total input.  It involves minimum wastage and maximum production. Allocative efficiency is when all the resources are used to their optimum and there are no unemployed factors of production. This occurs when the value that consumers place on a good or service equals the marginal cost of the resources used up in production.  Productive efficiency is when the production of one good cannot be increased without sacrificing production of another good.

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Unlike equality which implies same outcomes for different people and often leads to unfairness, equity means fairness in the overall distribution of income, wealth and economic opportunity.  Examples of measures to increase equity are progressive and regressive tax.

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Economic well-being relates to the standard of living and the quality of life of an individual. There are multiple factors considered like income, basic needs, healthcare, education etc.  Economic well- being may be determined through the Human Development Index (HDI) or Multidimensional Poverty Index(MPI). Disparities in economic well-being are often represented by division between absolute poverty and relative poverty.

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Sustainability is the ability of the present generation to meet its needs without compromising the ability of future generations to meet their needs. Harmful environment action involving resource depletion and degradation should be prevented.  In order to achieve this, external costs need to be minimised. For example- pollution.

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This is an extremely important topic in economics. The world is continuously changing and hence it is essential to evaluate the changes in terms of economics. Examples of important changes to look out for are changes in price and consumer preferences which influence demand, changes in technology which influence demand for labour etc.

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Neither individuals nor countries are self sufficient. Hence to is beneficial for everyone to rely on each other to obtain goods or services. Furthermore, different economies have a comparative advantage (producing a good or service at a lower opportunity sot than its trading partners) or an absolute advantage (producing a greater a quantity of a good or service at the same cost as its trading partners) in producing different goods and services. For example, Saudi Arabia has a lot of oil but may not produce rice and hence will import rice from a country that produces it.  However analyzing the degree of interdependence and the possible economic consequences is essential as being entirely dependent for goods like agricultural goods is not ideal for an economy.

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Intervention is the degree of government involvement in markets. Even though markets allocate resources effectively, government intervention is needed for various things: fulfilling the macroeconomic objectives, minimizing third party or external costs, increasing consumption of merit goods and restricting consumption of demerit goods, preventing exploitation of monopoly power, setting minimum wage levels, price controls, proving public goods etc.

Economic Key Concepts

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