Economic Growth and Scarcity free essay sample

Scarcity is the situation where finite factor inputs are insufficient to produce goods and services to satisfy infinite human wants. Economic growth is defined as the increase in real Gross Domestic Product(GDP) through time. Growth occurs if there is an increase in land, labor, human capital and technology. The question on whether economic growth solves the problem of scarcity can be discussed using the production possibility curve(PPC). The production possibility curve reflects scarcity. Suppose we assume that there are only two goods beings produced in a country: Good X and Good Y. The PPC shows all the different combinations of the two goods that can be produced in the economy when factor inputs are fully and efficiently employed, given the state of the technology. Good Y Good X d PPC1 In the above diagram, the PPC is concave to the origin because factor inputs are not equally suitable for producing different goods. We will write a custom essay sample on Economic Growth and Scarcity or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page As the economy produces more of Good Y, it has to use factor inputs that are less and less suitable for producing Good Y to actually produce Good Y. This means that increasingly more units of factor inputs must be used to produce each additional unit of Good Y. Therefore, increasingly, more units of Good X must be given up to produce each additional unit of Good Y. In other words, the opportunity cost of producing Good X increases as its quantity increases. Scarcity is reflected by point d, which is the country’s demand for goods; Current resources allow production only up to any point on PPC1, which makes point d currently unattainable. If the economy is producing on the production possibility curve, scarcity can be solved with economic growth. Economic growth can be attributed due to increasing the quantities or qualities of the resources For instance, education and training will increase human capital and hence the productivity of the labor force. Research and development will lead to technological advancement and hence increase the productivity of the capital stock. An in crease in the production capacity in the economy will allow more goods and services to be produced and hence reduces scarcity. It will shift the PPC to a new level to PPC2: Good Y Good X d PPC1 Therefore production level d, which was not attainable before, is now attainable. It is possible to say that economic growth solves the problem of scarcity. Yet, the problem of scarcity can only be solved in that immediate time period. In the longer term, human wants will keep on growing because Man’s wants are unlimited. Man is greedy. Also, the problem scarcity arises from the fact that the means of fulfilling these human wants are limited because the world has only a limited amount of resources. Even if economic growth occur due to increase in factors of production, human wants rise again and the process repeats itself. In conclusion, economic growth can only go some way towards reducing scarcity because more demands will be generated as more goods and services are produced. Economic growth can only truly solve the problem of scarcity only if the PPC growth is faster than the growth of human wants.