1. Wants

Wants refers to desires not backed by the purchasing power or the ability to pay. Wants are also known as ends. They are those things we will like to have. In most cases, they are things that bring pleasure but which are not necessary for survival like cars, shops, bags etc. These wants tend to increase as the level of civilization rises. Our wants can be classified under two headings:

5. Material wants
5. Immaterial wants

1. Material wants: They refer to those terms that can be seen or touch such as cars, houses, bags, TV sets etc.
2. Immaterial wants: They are those things we cannot see or touch with our hands such as education.

Characteristics of Wants

• Our wants are unlimited. This means that we cannot satisfy all our wants but with time, we can satisfy some of them.
• Our wants differ from one person to another and from time to time.
• The more we satisfy our wants the more we develop new ones.

Wants are different from needs. Needs refers to basic requirements for survival. They are basic necessities of life which include food, clothing and shelter. Needs are backed by the purchasing power or the ability to pay. Needs arises because of wants.

2. Scarcity

Scarcity is defined as limited in supply relative to demand. It means the resources available are not enough to satisfy human wants (Resources are limited, scarce or insufficient) in supply.

Scarcity is a characteristic or feature of all societies that is developed or developing countries, rich or poor etc. This is because resources required to satisfy human want are limited in all societies.

Differences between Scarcity and Shortage

• Scarcity means limited in supply relative to demand while shortage refers to a situation where demand exceeds supply.
• Scarcity is permanent where as shortage is temporary because the problem of shortage can be solved by an increase in supply.
• Scarcity affects all societies and at all times where as shortage does not affects all societies.

3. Choice

Choice refers to the act of selecting or deciding from a number of alternatives to satisfy human wants. It arises because of the problem of scarcity. It is necessary as far as the satisfaction of human wants is concerned because our wants are unlimited (numerous, limitless etc) while resources to them are limited in supply. The problem of choice affects individuals, firms and government.

1. Individuals: The individuals aim is to maximize satisfaction. They have to make s=decisions and each time they take such decisions, they are making a choice. They have to make a choice on how to use their time, money, the type of career to pursue in life etc.
2. Firms: The aim of a firm is to maximize profit. Firms must decide on what line of business to follow. Example: Wholesale, transportation etc. They must decide on what to produce, how to produce, where to produce and for whom to produce. They must decide when and where to market their products.
3. Government: The aim of the government is to promote basic commodities to it citizens at reasonable prices. The government has to decide on what to produce for it. Citizens decide on how to use the revenue, that is whether to spend more on schools, hospitals, national defense etc. She must decide on what type of educational institution to set-up. Eg: Vocational, technical or general education.

4. The Scale of Preference

This is an imaginary list of unsatisfied wants arranged in a descending order of importance such that the most important want appears t the top of the list and the less pressing want appears at the bottom.

Individuals, firms and government have to make their scale of preference. It is a subjective economic concept because what is most pressing to Mr. A, may be less pressing to Mr. B. The items found at the top of the scale will give maximum satisfaction.

When choosing a rational scale of preference, being chooses the most important want. Hence, the consumer buys the items at the top of the list first and the next becomes priority.

The Characteristics of the Scale of Preference

• The items on the list are arranged vertically.
• They are ranked in descending order of importance.
• The list varies from person to person, in time and place.
• The list is inexhaustible, that is why it ends with etc. When one thing is chosen, the other is forgone. This leads us to the concept of opportunity cost.

Importances of the Scale of Preference

• It is a tool for arranging wants in order of importance.
• It enables economic agents to maximize satisfaction.
• It necessitates the making of a choice that is it enables individuals, firms and government to make rational choices of resources.

5. Opportunity Cost (Real Cost, True Cost, Overhead Cost or Alternative Cost)

An individual cannot satisfy all his wants. He must choose between one thing and another. The opportunity cost represents the sacrifice which has to be made in order to make a choice. It is the act of forgoing one thing in order to enjoy the other. That is the “next best alternative forgone” in order to consume or produce something. It is also the next most pressing want which is forgone in order to have the most pressing one.

The concept of opportunity cost can be apply or important to the individuals, firms and government.

From the point of view of an individual, say a farmer, the opportunity cost of a piece of land he planted coffee is cocoa he has not planted. To a student, the real cost or opportunity cost of economics textbook is the sacrifice of the most needed alternatives; say a bag he could have bought with his money.

Firms may have to choose what type of goods to produce. They may produce more of capital goods than consumer goods and vice-versa.

From the point of view of the government, the opportunity cost of producing guns or buying military equipments is the sacrifice of the consumer goods. This is because, as guns of military equipments are produced, fewer resources are left for the production of consumer goods.

There is a chain relationship between scarcity, choice, scale of preference and opportunity cost. The scarcity of economic resources leads to the choice of what to do in the face of alternative choices leads to the establishment of scale of preference in order to identify what to choose at a given time. By choosing one thing, and forgoing the other, there is opportunity cost or forgone alternative.

6. Utility

We buy a particular good or service because of the satisfaction or pleasure derived or got from it consumption. Utility is the amount of satisfaction to be derived or obtained from the consumption of a good or service at a particular time and place.

In other words, utility means the power a group of services has in satisfying human wants. Eg: The utility of brad is the satisfaction to be obtained from eating it at a particular time. But the more bread you eat, the less satisfaction you derive from it.

Characteristics of Utility

• Utility varies from person to person, from place to place and from time to time.
• Utility diminishes as more and more of a good or service is consumed.
• Utility cannot be measured easily but it is measured in units of satisfaction called utils.

Once a good can satisfy a want, it has utility whether it is useful or not. Example: Cigarette satisfies the user but it is a harmful good