Economic Decision Making

Why can't you always get what you want?


Life is full of choices and decisions. The study of economics helps us see why we have to choose among alternatives. It also gives us tools for thinking about what we stand to gain and lose when making life’s decisions.

Why is what we want scarce? Scarcity exists because our wants, which are infinite, exceed our resources, which are finite. Unlike shortages, which are temporary in nature, scarcity is an inescapable fact of life. It means we can never have everything we might want.

How do we satisfy economic wants? Goods and services are produced by bringing together the three factors of production: land, labor, and capital. Entrepreneurship is an essential part of the production process. Entrepreneurs combine land, labor, and capital in new ways to create products that satisfy economic wants.

What do we give up when we make a choice? Every choice involves tradeoffs among alternatives. When making a decision, people generally try to maximize the utility, or satisfaction, they hope to gain by choosing one alternative over another. The opportunity cost of any the value of the next-best alternative.

How can we measure what we gain and lose when making choices? Economists use an economic model known as the production possibilities frontier to measure what we gain and lose when deciding how to use the factors of production in different ways. The model shows the tradeoffs and opportunity costs involved in producing more of one good at the expense of another. It also reminds us that even when an economy is working at peak efficiency, it won’t be able to produce everything that we might want.