In economics, scarcity simply refers to the limited nature of economic resources and as such consumers have to make choices as to what they can acquire with their limited resources and what they can forego. When the consumer makes the decision to acquire a good or service at the expense of another good or service that he also needed but could not acquire both due to limited resources, the foregone choice is referred to as opportunity cost (Frank and Bernanke). In our everyday life, these economic concepts are practiced both micro-economically and macro-economically. Personally, like so many other consumers, I apply these economic concepts.
I have limited resources and as such, whenever I am about to receive my income, I sit down and plan how I will spend the income. I come up with a list of the goods and services that I require. Every time they cost more than my income. I, therefore, have to rank them in order of priority and importance and identify the ones I can move on without. They become the opportunity cost of the choices that I make. Normally, paying the mortgage, buying food and clothing are basic needs that have to be top of the list. Below the basic needs I have had items like a new car, vacation, school fees, extended family needs and many other needs. Out of these, I would rank them regarding priority, and importance to decide what the opportunity cost is going to be since I cannot afford all of them at once (Frank and Bernanke). Items like school fees and family needs would often precede the others in the list, and either a new car and vacation may be the opportunity cost that I have had to forego to help the family and pay school fees.
Prices and Demand: Gas Price
Anybody who owns a car faces various economic decisions when the prices of gas either go up or reduce. Sometimes I have had to use public transport services when the price of gas escalates to an extent that makes feel that continuing to use my car on a daily basis is not economically sustainable. The price of gas just like the prices of many other normal goods affects its demand (Frank and Bernanke). The demand for gas increases when the price reduces as households increase the rate at which they can use their personal cars. When gas is cheap as it has been for sometimes now, many households tend to use their personal vehicles more often than they use when the prices are high.
Furthermore, the economics behind fuel prices is more than just using cars. Gas prices affect many sectors of the economy which in turn affect the consumer. For instance, there are industries where gas is used as the main or supplementary source of energy for production. The price of products from such industries tend to depend on the cost of production which includes the price of gas used in the production process. It, therefore, implies that the prices of household products will also rise when the price of gas increases and fall when the price of gas decreases (Frank and Bernanke). The demand for normal goods and services from such industries also follow the same trend with a respective shift in demand curves to the left when prices rise and to the right when prices decrease.
Works Cited
Frank, Robert H and Ben Bernanke. Principles Of Economics. Boston, Mass.: McGraw-Hill, 2004. Print.
