The forces that underpin the study of economics impact every moment of our lives. The article “4 Economic Concepts Consumers need to Know” Economic theories and macro-economic variables may seem really abstract and not important, but they are very important, and they determine how much you might be paying for the next commodity or goods you are about to buy. When you do a forecast of selling price for a commodity or the general state of the economy, you know where to invest your money. You can plan your finances, and this makes you a better person as opposed to just going with the flow and incurring losses without explanation for them.
There are 4 major ideas which are important to a consumer:
scarcity, supply, demand, costs, and benefits.
Scarcity is an economic concept which refers to the basic fact of life that there exists only a finite amount of human and non-human resources which the best technical knowledge can use to produce only limited maximum amounts of each economic good- Wikipedia. Scarcity simply put means limitation in the availability of a resource in comparison to the limitless and numerous wants which we have. We very well speak of scarcity when we say there is a limitation of US dollars for foreign exchange transactions or for importation of goods compared to the many transactions which we need this currency for (I speak from a Nigerian’s perspective).
This results in inflation because the purchasing power of the Naira becomes very weak because of putting in so much to obtain a few notes of US dollars. Crude oil being the major resource for economic activities in Nigeria gets scarce as well and this leads to increase in demand.
A good or service can be said to be scarce when it is limited or costly and this affects the benchmark for demand. When we detect scarcity of a resource, it helps channel the use of such resource appropriately for the purpose of making profit. When we consider it categorically, we know very well that the use of water cannot be compared to the use of crude oil. We need not make plans for the use of water because it’s a gift of nature. Crude oil is not a resource which is owned by a lot of countries and thus it is scarce and highly demanded. An oil producing country like Nigeria must therefore study the analytics and determine what final product of crude oil is in high demand.
They determine whether it is better to refine crude oil into more petroleum or more diesel or to export it just as it is. Scarcity helps decision making and profitability. You don’t use up scarce resource just anyhow. In this same light, money is a scarce commodity.
Determining that a good or service is scarce helps us make this decision. Up next is demand and supply. As explained earlier, when a good is highly demanded it is because it is limited or of utmost importance. It means it is probably a necessary good or a luxury which is essential (like medication for cancer). Necessary goods are food items, daily essentials, consumables, etc. When there is high demand for a product, the product is probably scarce and thus there will be a decrease in supply. Products which are permanently in high demand like necessary goods have an inelastic nature of demand. It means that nothing changes demand for such products. They won’t go from being inelastic to being elastic because of increase in price. Thus, when there is scarcity, and there is an increase in price demand for a luxury good might reduce but a necessary good will continually be demanded because people will continually pay to get their daily supply.
This will lead to inflation and the value of money will reduce. Deciding to save your money in a savings account now instead of investing it might be a poor decision because when you get it back, there might be no value for the money due to increase in prices. Again, it is important to look at it from a flip side. Deciding to venture into an enterprise simply because you think that product is highly demanded for might not be a good decision. You need to be very sure that only few people are in the business of producing and distributing such product or rendering such service. This is because increase in supply which will eventually occur when there are too many goods in circulation because of too many suppliers leads to less demand. On a final note, the ideas of costs and benefits is related to the theory of rational choice (and rational expectations) that economics is based on. If demand for beer is high for instance, breweries will hire more employees to make more beer, but only if the price of This means then that a business owner will be willing to incur more costs if the benefits are apparently worth the costs. Economic theories are as important as living life. They help us make smarter decisions. They give explanations for changes in price and market trends. They are of utmost importance, and they should not be ignored.
