Make Your Mind Up Already

When I took Introduction to Marketing, my professor told us that people walk around with shopping lists in their minds. A person says, "If I ever get the money, I will buy . . . ." Then the person names the things on the list: a new car, a boat, a tropical vacation, new dress shoes, a house, and so on. But what if our hypothetical person suddenly came into money through an inheritance or a lottery or big bonus? Our lucky shopper would start buying things on the mental list. And what do you think? Once all the items on the list have been purchased, Super Shopper will be done shopping forever, right?

Of course not. In general, on average, people are never satisfied. Sure, there are some saints on earth who do not crave more goods, but most people have insatiable wants. Notice that I am using the word wants, not needs. Once the lucky shopper buys everything on the mental list, new wants replace the old ones.

Now, a secret. In economics, everything comes in two's. For example, economists make two assumptions about human economic behavior. One assumption is the existence of insatiable wants. The other assumption is related to the definition of market. A buyer and seller come together and make a trade. Product moves in one direction and resources—usually money—move in the other. We have infinite wants, but we also learn at an early age that we cannot have everything we want. There are not enough resources—for example, money—to spend in order to satisfy our infinite wants. Resources are scarce, finite.

So, in general, on average, our wants are infinite, but our resources are scarce.

There are two main examples of scarce resources. Why two? Because in economics, everything comes in two's! One example of a scarce resource is labor, human resources. At any one moment in time, there is a finite number of workers on earth. These workers can produce goods and services, but not enough to satisfy infinite wants.

The other example of a scarce resource is capital. In economics, the word capital means the physical things we use to make stuff. A factory building, an airplane, an office computer are examples of capital equipment. Again, at any given moment in time, there is a finite amount of capital equipment. There is never enough capital to be used to satisfy infinite wants.

What does it mean that we have infinite wants, but scarce resources? It means that we are forced to make choices. We cannot have it all. Instead, we must prioritize which of our infinite wants we will satisfy and which we will sacrifice. As a matter of fact, you already understand the idea that the central economic behavior is making choices. Imagine that, when you go to buy groceries one week, you have less money to spend than usual. As you walk into the store, you say to yourself, "This week I am going to have to economize." You know that you cannot afford to buy everything that you usually buy, so you will have to set priorities. You will have to make choices.

This is what economics is all about, making choices and tradeoffs.. Consumers have to make economic choices. So do managers and so do societies.

Economics scientifically studies choice-making behavior. What do people consider when making their choices? Can we predict what choices people will make?

Keep reading.

COPYRIGHT © 2008 by Robert D. Sandman
ALL RIGHTS RESERVED.