Introduction to economic systems
Yvonne Harvey, Contributor

Mount Alvernia Preparatory School Board member Winston McKane (left) cuts the ribbon to officially open the Sister Greta Clarke Auditorium. Looking on are Roman Catholic Bishop of Montego Bay, Charles H. Dufour (right), Member of Parliament for North West St. James, Horace Chang (second right), and Sister Maureen Clarke. The auditorium is a part of a $19 million school block which was erected to facilitate the increase in students. - Claudine Housen/Staff Photographer

In order for you to properly understand the area of economic systems, there are some fundamental concepts that you should consider. This lesson will outline these concepts and next week's lesson will discuss the actual accepted economic systems. The first concept that we will look at is the concept of economics.

What is economics?

Economics is regarded as a social science which looks at the allocation of scarce resources amongst alternative and competing wants, with the objective of gaining maximum satisfaction of these wants.

This indicates that the chief concern of economics is the distribution or sharing out of scarce resources insuch a way that the most satisfaction can be gained.

What is scarcity?

Scarcity is the basic economic problem. It refers to things being limited in supply relative to or in comparison to desires and demands. Everything is scarce or limited in supply, even though some items may appear to be in abundance.

The problem of scarcity arises because, while our desires and demands for goods and services are unlimited, the resources for producing these are scarce or limited in supply, hence, the goods and services are themselves limited in supply.

The productive resources (land, labour, capital and entrepreneurship), income and time are all scarce. We do not have enough of these to satisfy all our desires. For example, besides the question of whether you need or want a VCR, there is the issue of whether there will be enough VCRs to allow every person who desires one to own one.

Also, not everyone will have enough money to buy a VCR. As a student, the money you have cannot buy everything you want.

Your money is, therefore, a scarce resource. All countries face the problem of scarcity, whether they are developed, developing or underdeveloped.

However, the extent of the scarcity faced by various countries will differ according to the amount of resources that the country has. Within each country, individuals, businesses and Government face scarcity.

How to solve scarcity?

The problem of scarcity cannot be solved but it forces people to make choices about how best to allocate or distribute their scarce resources. When we choose, we select some alternatives and leave out other competing alternatives.

As students, you make several choices each day. These choices involve how best to spend your pocket money and how best to utilise your time.

Businesses and Governments also make choices because of scarcity. The choices they make enable them to maximise profits and social welfare respectively. Is choice then the end of the story? No, all choices lead to opportunity.

Opportunity cost refers to the next best alternative to the choice that was made. It is the true or real cost in the sense of the next best alternative given up or sacrificed when a choice is made.

Please note that the opportunity cost is only the next best alternative to the choice, not all the foregone alternatives. For example, scarcity of time might require that you make a choice between going to school, going to the beach and staying at home.

If you chose to go to school and staying at home is your next best alternative, then the leisure that you could have experienced if you stayed home becomes your opportunity cost.

Also, on a daily basis, you have to make choices as to what to buy with your limited lunch money. If the choice is between a bun and cheese, a patty and a sandwich and you chose the patty, leaving the sandwich as the next best alternative, then the sandwich is the true cost or the opportunity cost of the choice you made.

As they attempt to address the economic problem of scarcity, societies must answer three basic economic questions: what to produce, how to produce and for whom to produce? The answers to these questions differ according to the type of economic system under consideration.

Next week's lesson will look at how the three main types of economic systems address these issues. The advantages and disadvantages of each system will also be discussed.

Do the following:

1. Identify the cause of scarcity.

2. Define scarcity.

3. Discuss who is affected by scarcity.

4. State the three choices society must make because of scarcity.

5. Define opportunity cost.

6. Give an example to illustrate opportunity cost.

Having done all of the above, you should be ready for the lesson on economic systems. See you all next week.

Yvonne Harvey teaches at Glenmuir High School.