You have $60 of birthday money. You could buy new running shoes, a ticket to see a band at a local arena, or a month of extra phone data. You cannot have all three, because the money runs out. That small problem is the starting point of all of economics. Economics is the study of how people, businesses and governments make choices when they cannot have everything they want. Every business you will ever start lives inside this problem: customers have limited money, and they will only spend it on you if you help them make a choice they feel good about.
Needs versus wants
A need is something a person must have to survive and live safely: food, water, shelter, clothing for the weather and health care. A want is something a person would like to have but could live without: a new phone when the old one still works, a concert ticket, name-brand sneakers. The line is not always sharp. Clothing is a need, but a $250 designer hoodie is a want, because a $25 hoodie keeps you just as warm. A good test is to ask: would my health or safety suffer without this? If not, it is a want.
- Required to survive and stay safe
- Food, water, shelter, weather-proof clothing, health care
- Groceries for the week
- A warm winter coat
- Nice to have, but you could live without it
- Entertainment, upgrades, brand names, treats
- Takeout bubble tea
- A limited-edition winter coat in this year's colour
Scarcity, choice and opportunity cost
Scarcity means there is not enough of something to satisfy everyone's wants. Scarcity is not the same as being rare or poor: even a millionaire has only 24 hours in a day, and even a huge company has a limited budget. Resources are the things used to make goods and services, such as land, workers, machines and money, and they are always limited. Because of scarcity, people must make a choice, and every choice means giving something up. The opportunity cost of a choice is the value of the next-best option you gave up. It is only the single next-best option, not everything you could have done.
Time has an opportunity cost too. If you work part-time at $17 an hour and you skip a 4-hour shift to go to a hockey game, the game costs you more than the ticket. You also give up the wages you would have earned: . Thinking this way helps you make better decisions, because the price tag is often not the full cost.
How scarcity shapes what consumers do
A consumer is a person who buys and uses goods and services. Because consumers have limited money and time, they behave in predictable ways. They compare prices, look for sales, buy store brands of groceries when budgets are tight, wait for a phone to drop in price, or buy used items. When something becomes scarce, like tickets to a popular concert that sell out in minutes, people line up early, pay more on resale sites, or switch to a different show. Consumers also trade money for time: a busy family might pay extra for a meal kit because their time is scarce, even though cooking from scratch costs less.
How businesses respond to needs, wants and scarcity
- New products: a business notices an unmet want and creates something for it, such as a phone case with a card wallet for students who do not want to carry a purse or wallet.
- Pricing: when budgets are tight, stores offer value sizes, store brands, combo deals and sales; when a product is in short supply, sellers can charge more.
- Convenience: because customers' time is scarce, businesses offer delivery, online ordering, self-checkout, longer hours and subscriptions.
- Turning a need into a want: a grocery store sells the need (food) but competes on wants (fresh baked bread, ready-to-eat meals, a nicer shopping trip).
- Making the choice easier: reviews, comparison charts, free returns and trial sizes reduce the risk of a bad choice, so customers are more willing to buy.