in economics is defined as the absence of an obstacle or constraint. But what is the obstacle or constraint, and how can it be removed? Different obstacles and constraints present themselves to different people in innumerable situations.
The Statue of Liberty represents freedom, but not everyone defines freedom the same way.
The Two Faces of Freedom
It is normal for people to have different ideas about freedom. Freedom is the absence of an obstacle, but the obstacles people face are not always the same, so their ideas about freedom can be very different.
For a teenager, one obstacle might be rules set by one’s parents. For a parent, an obstacle to freedom might be his or her struggle to earn money for the family.
In the game of economics, different ideas about freedom lead to different ways of looking at the allocation of resources. If you think of freedom in terms of people making their own choices, you might believe that producers should get to decide how goods and services are produced without any constraints. But if you think of freedom as the absence of economic struggle and need, you might believe the government should tell the producers what to make and how much to charge so that everyone’s basic needs can be met. These different views of economic freedom lead to different ideas about how an economy should function.
Conflict Over Goals
With goals that are sometimes incompatible, economics can lead to conflict. Do you want efficiency, growth, security, equity, freedom, or some combination? You need to have some goals, but someone else will inevitably have different goals. No matter what you want, there are bound to be other people who want something else. This can create conflict.
This means that there is more to economics than the allocation of resources for the production and distribution of goods and services. Economics is also about setting goals that affect how these allocation decisions are made.
We All Need Goals
You cannot play a game without goals. How else can you make important decisions? But people often disagree about the goals they have for playing a game.
Things are no different in the game of economics. The goals people have for the economy might be different. They might even be incompatible sometimes. Nevertheless, you need goals to play this or any game.
Humans have wants and needs that are often greater than what is available. Thus, people face scarcity as a basic fact of life.
You might think that there are plenty of goods and services available to you. But what would happen if the world stopped producing the thing you need or want? Eventually, the supply would run out. When goods and services become hard to find, it leads to scarcity.
You saw before that economics is about the allocation of resources for the production and distribution of goods and services. The problem of scarcity is the reason that this is necessary. If there were plenty of goods and services to go around, no one would need to make allocation decisions. Scarcity is yet another reason why everyone plays economics.
People can face shortages of important goods.
What Is to Be Produced?
Because scarcity is a fact of life, people have to work to try to increase supply in order to meet demand. Different people want different goods and services. If there were unlimited resources, people everywhere could have what they wanted.
Since resources are not unlimited everyone has to make tough decisions about what to do with the resources available. One big question that needs to be addressed in any economy is this: What is to be produced?
Because of scarcity, deciding what is to be produced involves also deciding what not to produce.
Remember your bag of flour? You can allocate the flour for making bread for sandwiches. But what if it is your friend’s birthday? If you use the flour for bread, you cannot make a birthday cake. Before you start producing something, you have to decide what to produce.
Allocating resources often involves deciding to produce one thing instead of another.
Getting Organized
Once it is decided what will be produced, there are still more questions to answer. It takes organization to produce and distribute goods and services.
There are all kinds of ways to organize production. There could be factories, offices of varying sizes, or people working at home. There could be different people who specialize in different jobs, or everyone could take turns doing all the different jobs. Production might go on 24 hours a day, seven days a week, or it could be kept to certain working hours.
This is just a short list of the different options. There are many methods of organizing production. How do people decide on the best way to organize production? The economic goals people have will affect how this question is answered. This can again lead to conflict.
The goal of efficiency requires a form of organization that has as little waste as possible. One good way of eliminating waste is to have different workers specialize in different jobs. But if equity is the goal, specialization might not be the way to go. When you divide up production into different tasks, some of the tasks might be harder than others. Equity could mean giving each of these workers a chance to do the easier, cleaner job. But what if freedom is your main economic goal? In this case, production would have to be organized to give workers different choices, and workers would have the freedom to decide what jobs to take.
Who Gets What and Where?
The questions do not stop once decisions about production have been made. You saw that goods often need to be transported from where they are made to where they are used. This is distribution. There is more to distribution than just transportation, however.
Getting goods to the people who use them means making decisions about who gets what. Because of scarcity, some people will not always get what they want. So, the game of economics involves answering a third question: How are goods and services to be distributed?
In other words, how shall we decide who gets what?
If you want equity or security, producers probably need to be told what to produce. Their choices could end up being incompatible with those goals. The government can make sure that everyone is secure, or that goods and services are distributed fairly. But when the government decides how goods and services are distributed, that takes away free choice. Producers are told what to produce and where to send it. A different way to organize distribution is not to organize it at all, to leave it up to people’s free choices to decide what gets produced and how goods and services are distributed. This might result in an unfair distribution, or one that leaves some people insecure, but it would not involve the government telling people what to do.
A Variety of Resources
Organizing an economic system involves making decisions about what is going
