26 Unit 1 The Economic System
Although the U.S. economy is technically a mixed economy, in this
textbook and elsewhere it is labeled a market economy. Compared with
other mixed economies, the U.S. has minimal government involvement.
The government’s limited role in the U.S. economy is varied and impor-
tant. That role will be covered in detail in the next chapter.
The Challenge of Scarcity
All economic systems attempt to resolve the problem of unlimited needs
and wants and limited resources. Here the term resources refers to any input
used to generate other goods or services. The challenge of stretching resources
to cover needs and wants is called scarcity. Individuals, families, companies,
and nations are all limited in the resources available to meet needs and wants.
Deciding how to deal with scarcity is the basis for the study of economics.
Over your lifetime, your needs and wants will never end. There are
many reasons for this. The most obvious is that you outgrow your current
needs and wants and develop new ones. For example, as your feet grow
bigger, you need larger shoes. Another reason is your needs and wants
change as you grow mentally and emotionally. See 1-2.
Also, fulfi lling one want often creates new ones. For example, if you
buy a new music system, you will want music to play on it. You may want
headphones and a shelf to hold your equipment. When your music system
becomes outdated, you will want a new improved model.
Scarcity forces people, businesses, and governments to make choices
in the use of resources and the needs to be met. There are two basic types
of resources that are considered.
•
Nonhuman resources are external resources, such as money, time,
equipment, and possessions.
•
Human resources are qualities and characteristics that people have
within themselves.
Human resources include qualities that make workers more produc-
tive, such as good health, skills, knowledge, and education. Entrepreneurship
is a type of human resource, too. It is a set of personal qualities that helps
an individual create, operate, and assume the risk of new businesses.
Consumers have unlimited needs and wants for different goods and
services. These include food, clothes, housing, medical care, cars, and
spending money. Since resources are limited while wants are unlimited, it
is necessary to choose which wants to satisfy.
For example, suppose you must choose between seeing a movie and
going bowling because you do not have time for both. You may need to
choose between a new pair of gym shoes and a pair of boots if you do not
have money for both. Families may have to choose between buying a new
car and taking a family vacation, or between buying a home and starting
a business. Economic choices are endless.
Scarcity applies to government in the same way. The needs of citizens
far exceed the resources of the government. That is why it is necessary
to make choices. Local governments may need to choose between raising