Sunday, May 09, 2010

Scarcity (2) - Choices

Scarcity requires choice. Whenever, we want more of something, we have to choose to have less of something else. If I decide I want to earn more money, then I am choosing to have less leisure. Since I am finite, I cannot choose to do more work and have more leisure at the same time. The book of Proverbs reminds us of this truth.

A little sleep, a little slumber,
a little folding of the hands to rest-
and poverty will come on you like a bandit
and scarcity like an armed man (Prov 6:10-12).
This verse must be really important, because it is repeated word-for word in Proverbs 24:33-34. Scarcity is used here in a different sense, as a synonym for poverty, but the verse is a clear statement that we face a choice between leisure and poverty. Likewise, if I want to spend more time preaching the gospel, I will have to spend less time at work or relaxing.

Most of our choices we face involve a cost. The cost is whatever we have to give up, when we choose to do something else. If I choose to buy a television, then I will have to postpone buying a new laptop. That is the cost of my choice. Even giving has a cost. If I give money to the poor, I cannot use it to buy groceries.

In a money economy, choice at a personal level takes four forms.
  1. I have to make the choice between work and leisure. This choice determines my income. The cost of my income is the energy I expend at work and the loss of leisure time.

  2. I have to allocate my income between consumption and saving. The cost of increased consumption is a reduction in savings, which may close out some future options.

  3. I have to decide how much of my income, I will give away to others. The cost of giving is the consumption that I will have to forgo.

  4. I have to allocate my expenditure on consumption between a multitude of goods and services that are available for purchase.

We are constantly making and revisiting these types of choice. Economic is really a study of how people make choices. The economist attempts to understand how people weigh up the cost of the choices they must make and how they allocate their time and energy between the infinite number of choices that everyone faces.

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