Scarcity of Goods and Services and the Choice

Subject: Economics
Pages: 6
Words: 1810
Reading time:
7 min
Study level: PhD

Scarcity is the limited supply of goods and services which means that what people want is more than what is available. Scarcity puts limitations on individuals and society because individuals will have limited income to be able to afford all that they need and society will have limited resources such as machinery, manpower, and natural resources to be able to produce goods and services in large quantities.

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Scarcity requires a choice to be made where people choose what they desire to satisfy and what to leave unsatisfied. When individuals or society choose more of one thing, they will have to choose less of the other. Economics is referred to as the study of scarcity because there would not be an existence of economic activity if people were not forced by scarcity to make choices.

In a situation where there is scarcity and choice, costs are involved. The cost of a choice is the option that is given up. For example, if the option of playing a game is given up to read a text, the cost of reading the text is enjoyment received by playing the game. Economics is based on the idea of people making choices by comparing the benefits of taking one option and the benefits of the other option when all the other options are available.

There is a basic economic problem about scarcity and choice because resources available are in limited amounts and they are supposed to produce goods and services desired in unlimited amounts. The problem is in deciding the goods and services to produce, how the goods and services can be produced in the best way and who is supposed to receive the goods and services by knowing the best method to use in distributing the products to be able to meet the highest level of needs and wants. (Carbaugh, 2007 pp13-15)

Recent U.S federal budget problems

In the last two and a half years, the U.S. federal has deteriorated where it shifted from a surplus of $127 billion in 2001 to a deficit of $400 in the fiscal year 2003. This was due to a decline in short-term factors such as economic slowdown and the war on terrorism. There was a projection by the Congressional Budget Office where the baseline budget for the year 2002 to 2011 would change from a surplus of $5.6 trillion in 2001. When the office was taken by president bush, the deficit went up to #2.3 trillion. There were worse budget projections later due to tax cuts in the year 2001 and 2003 and an increase in government spending.

There were current surpluses in Medicare trust funds and Social Security even if both of them had long-term deficits and future projections have unrealistic assumptions about the current policy. Making realistic assumptions concerning current policy, Medicare trust funds, and Social Security being off-budget show large persistent imbalances between the spending and revenue that had a total of $8 trillion in the next decade. The budget deficit is a problem because it reduces national income in the future where it begins by reducing national savings which can only be increased by increasing private savings. (Maltese, 1995 pp14-16)

How scarcity and choice have influenced recent U.S federal budget problems

When U.S government expenses are more than the revenue collected, new debts are issued in order to cover the deficit. This debt is in the form of issuing new government bonds to be sold in an open market. This debt can be monetized where Federal Reserve makes an entry in the books by crediting the United States government with a similar amount of bonds that are acquired by the Federal Reserve. The money that is acquired includes new dollars acquired for purchasing the bonds and money sitting in form of a checkbook at the Federal Reserve. Under a fractional reserve banking scheme, money in the checkbook is taken as an asset that lends against. Expansion of money supply is estimated by economists as the number of times amount of initial money is created with deposits kept aside by banks as reserves.

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The consequence of monetizing the debt of the U.S is to expand the money supply which makes the dollar already in circulation dilute the value. By the pool of money being expanded, downward pressure is put on the dollar and on the short-term rate of interest leading to high inflation. This results in the inflationary boom that ends up in a deflationary bust for the business cycle to be completed. United States dollar is an important commodity in the world market and it is subject to the law of demand and supply. (Maltese, 1995 pp17-18)

When the federal government pays the debt, there is a reduction in money supply and the government surplus is a deflationary recession because money supply contracts reverse the process of monetization. This consequence can be avoided by the government by making a choice to expand gross domestic product by reducing the gross domestic product percentage represented by the debt. This will ensure that deficit spending that causes an increase in debt will increase gross domestic product by a higher amount and debt would decrease in relative terms.

With swelling in federal budget surplus, more threatened tracks could be brought if spending on land is increased by the Congress and the fund for water conservation which gets its finances from the offshore drilling leases. By the beginning of this year, a budget on land acquisition was proposed by President Clinton amounting to $1 billion every year. Democrats and Republicans gave competing proposals for the spending to be more.

But even if there was great political support, legislation that locks spending of many billions of dollars got involved in long debates over how prospective surplus would be allocated in the future but it did not agree with the Senate or the House. Conservationists got thrilled with the money set aside to buy land. In the past years, $900 million from the annual oil lease was more than the amount spent by the government to buy land but this year government will spend half of $900 and the remaining money is supposed to be used for land purchases. (Schick, 2000 pp12-19)

The geostrategic constraints in Washington are being exacerbated by financial limits due to budget deficit and precipitous dollar decline and rising prices of raw materials. There remains an open question about the spending by the United States in protecting interests that are perceived by the leaders. Post-war nation-building was underfunded in Iraq and Afghanistan and increases in expenditure are not likely to occur.

Washington has a choice of rebuilding power in the United States or retreat to a regional power that is undisputed in North America. It remains unclear as to whether the administration of bush will have resources for rebuilding intelligence and military apparatus to restore alliance structure.

During George Bush’s first term, Washington initiated world affairs by attempting to use a unilateral program and if it succeeded, United States would have been made a permanent superpower by offering protection to globalized capitalism for its advantage. In the second term of the bush, Washington would respond because of being mired by unilateralist failures. Decisive image of military superiority was replaced by limitations of the United States and budget surpluses have prospected continued large budget deficits.

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Bush administration tried to deal with problems that resulted from actions that were taken during the first term of the president and there were difficulties in following the need of satisfying constituencies that led to the victory of the republican. In the election, it was confirmed that the American public did not have a common consensus on foreign policy and it is polarized. Social and economic issues were also polarized and new policies of administration faced domestic opposition and partial support. (Rubin, 2002 pp26-29)

The international posture of Washington is affected by the polarization, attention, and commitment that the administration gives to domestic battles that congress would be fought to push the legislative agenda in order to satisfy its constituencies. In the campaign and press conference of post-election, the administration of bush was committed to policy initiatives in order to take steps in privatizing social security and reform tax code radically. Those plans together with extending tax cuts and tort reform generated fierce conflicts and exhausted the political capital of the president in order to win support. The ownership society vision where government entitlement and regulations were dismantled is equivalent to the foreign policy of neo-conservative.

Inflation is the main economic problem that faces U.S federal budget and individual looks for a solution that hurts them personally. Officials who are elected in the government have been promising to end inflation while at the same time they do not consider tough programs that hurt the interest groups by adding elements of inflationary like indexing to the system. They consider what is politically popular that might amount to leadership.

Inflation today comes as a result of government spending more than what it takes in and at the same time, it has imposed upon industry and business from a shopkeeper to the biggest industry and having punitive taxes and harassing regulations that reduce productivity and printing in excessive amounts that increase inflation. The problem with U.S federal budget is not the higher prices but the reduction in the value of money thereby robbing American people of their savings because more money is spent to purchase commodities and savings are reduced.

The proposed plan is a tax cut over three year period, depreciation allowances, and a tax cut for industry and businesses should help them get capital to be able to refurbish their plant and equipment and using improved technology and research and development that foreign investors already have. If the production is increased, there would be a stable money supply in the economy and people will be able to have a bigger share of savings and will be able to finance their budgets.

The U.S. federal government will need to make a choice of the best method to use when collecting taxes to finance their budget in order to avoid problems of a budget deficit. The citizens should pay tax depending on their ability to pay where those who earn a large amount of salary will pay more tax and those who earn less pay less. People should not avoid or evade paying taxes and if one fails to submit his or her tax, there should be a penalty to be paid on top of the amount of tax that has not been paid. (Carbaugh, 2007 pp16-19)


Carbaugh R. (2007): Contemporary Economics: An application approach: Sharpe, pp. 13-19.

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Maltese G. (1995): The U.S. Federal Budget Process: Nova Science Publishers, pp. 14-18.

Schick A. (2000): The Federal Budget; Politics, Process and policy: Brookings Institution Press, pp. 12-19.

Rubin I. (2002): Balancing the Federal Budget: Chatham House Publishers, pp. 26-29.