Economics is the study of how societies use scarce resources to
produce valuable commodities and distribute them among different people.
Behind this definition are two key ideas in economics: that goods are scarce and that society must use its resources efficiently.
Indeed, economics is an important subject because of the fact of scarcity and desire for efficiency.
Take scarcity first. If infinite quantities of every good could be produced or if human
desires were fully satisfied, what would be the consequences? People would not worry about budgeting their income because
they could have everything they wanted; businesses would not need to fret over the cost of labour or health care; governments
would not need to struggle over taxes or spending because nobody would care. Moreover, since all of us could have as
much as we pleased, no one would be concerned about the distribution of incomes among different people or classes.
Given unlimited wants, it is important that an economy make the best use of its limited resources.
That brings us to the critical notion of efficiency. Efficiency means absence
of waste, or using the economy's resources as effectively as possible to satisfy people's needs and desires.
More specifically, the economy is producing efficiently when it cannot produce more of one
good without producing less of something else.
The essence of economics is to acknowledge the reality of scarcity and then figure out how
to set up society in a way which produces the most efficient use of resources.