What Is Economics? The Study of Everyday Choices and Scarcity

For decades, popular culture has framed economics as a dry, adult-focused discipline reserved for Wall Street analysts, government policymakers, and business executives. Cartoons depict economists surrounded by stock tickers and piles of currency, while middle school and high school curricula often relegate economics to optional elective courses for students interested in finance careers. This narrow perception is not just inaccurate—it actively prevents young learners from developing a foundational tool for navigating every choice they will make in life. Economics is, at its core, the scientific study of how individuals and societies allocate scarce resources to satisfy unlimited wants and needs, and its principles apply as much to a 10-year-old deciding how to spend a Saturday afternoon as they do to a national government setting a multi-trillion-dollar annual budget.

To illustrate this point, consider the case of Liam, a 10-year-old living in suburban Chicago. On a sunny Saturday in May, Liam has two hours of free time after finishing his weekly math homework, and his mother has given him a $10 weekly allowance for discretionary spending. He has three options for how to use these scarce resources: (1) go to the community skate park with his two best friends, an activity that costs no money but requires his full two hours of free time; (2) walk to the local comic book store to buy the newest *Dog Man* graphic novel, which costs $9.99, leaving him 1 cent to add to his piggy bank, and requires 45 minutes of his time; or (3) deposit the full $10 into his piggy bank to save for the wireless Bluetooth headphones he has been asking for his birthday, which cost $39.99, meaning he will need to save for three more weeks to afford them. Liam’s time, money, and even his physical energy are all scarce: he cannot spend two hours skateboarding and 45 minutes at the comic store at the same time; he cannot use the $10 to both buy the graphic novel and save for headphones; and if he spends two hours skateboarding, he will be too tired to practice his piano scales later that afternoon, an activity his teacher has asked him to prioritize for an upcoming recital.

This simple scenario encapsulates the most fundamental problem in economics: scarcity. Scarcity is defined as the condition that arises because all resources—including time, money, natural resources, labor, and physical goods—are limited, while human wants and needs are effectively unlimited. Economists distinguish between two types of needs: *needs*, which are goods or services required for basic survival, such as food, water, shelter, and basic healthcare; and *wants*, which are goods or services that are desired but not required for survival, such as new sneakers, concert tickets, or the latest smartphone. Liam’s needs are already met: he has a home, food to eat, and clothes to wear. His wants—new headphones, a new graphic novel, time to skateboard with friends—are what create the scarcity problem, because he cannot satisfy all of them at once. Scarcity is a universal condition that affects every person, organization, and government on the planet, regardless of wealth or status. Even the wealthiest individuals face scarcity: a billionaire may be able to buy any consumer good they want, but they cannot buy more than 24 hours of time per day, and they cannot be in two places at once. At the global level, absolute scarcity exists for non-renewable resources such as fossil fuels and rare earth minerals: the total global supply of oil is estimated to last between 40 and 50 years at current consumption rates, while global demand for energy is projected to grow by 25% by 2050, creating a gap between limited supply and growing demand. Relative scarcity, by contrast, occurs when total supply of a resource is sufficient to meet global needs, but distribution or access barriers prevent some groups from accessing it: the Food and Agriculture Organization of the United Nations estimates that global agricultural production is sufficient to feed 10 billion people, more than the current global population of 8 billion, yet 828 million people faced hunger in 2023 due to poverty, conflict, and supply chain disruptions that limit access to food.

Because scarcity is universal, every individual and group must make choices about how to allocate their limited resources. This brings us to the second core concept of economics: choice. A choice is the act of selecting one or more options from a set of available alternatives, a process required by the existence of scarcity. If resources were unlimited, no choices would be necessary: Liam could have infinite time and infinite money to skateboard, buy every graphic novel ever published, and save for as many headphones as he wanted. But because resources are limited, he must choose. Choices occur at every level of society: at the individual level, a student must choose how to spend their after-school time; at the household level, a family must choose how to spend their monthly income; at the firm level, a company must choose how to allocate its marketing budget; at the national level, a government must choose how to spend its annual tax revenue; and at the global level, international organizations must choose how to allocate humanitarian aid across countries facing crisis. For example, the U.S. federal government’s 2024 discretionary budget is $1.7 trillion, which must be allocated across defense, education, healthcare, infrastructure, and dozens of other priority areas. Lawmakers cannot fully fund every proposed program, so they must make choices about which programs to prioritize, and which to cut or underfund.

Every choice involves trade-offs, the third foundational concept of economics. A trade-off is the loss of one benefit or advantage in exchange for gaining another, an inherent feature of all decision-making. Returning to Liam’s scenario, if he chooses to skateboard with his friends, he gains the benefit of social connection, physical exercise, and enjoyment of the outdoors, but he loses the benefit of owning the new *Dog Man* novel immediately, and he delays his progress toward buying the headphones he wants. If he chooses to buy the graphic novel, he gains the benefit of reading the new story he has been excited about, but he loses the opportunity to skateboard with his friends and makes no progress toward his savings goal. If he chooses to save the $10, he gains the benefit of being one step closer to his desired headphones, but he loses both the social and recreational benefits of skateboarding and the immediate gratification of reading the new novel. Trade-offs are not always obvious, and they often involve both tangible and intangible costs and benefits. For example, if a student chooses to spend an hour scrolling through social media instead of studying for a test, the tangible trade-off may be a slightly lower test score, while the intangible trade-off may be the stress of feeling unprepared for the exam, or the disappointment of a parent who values academic performance. At the national level, if a government chooses to increase spending on renewable energy infrastructure, the trade-off may be reduced spending on other priorities such as public education or healthcare, or higher taxes to pay for the new spending.

The value of the next-best alternative forgone when a choice is made is called the opportunity cost of that choice. Opportunity cost is one of the most important concepts in economics, because it forces decision-makers to consider not just the explicit costs of a choice, but also the implicit value of what they are giving up. It is critical to emphasize that opportunity cost refers only to the *next-best* alternative, not all alternatives that are forgone. In Liam’s scenario, if he chooses to skateboard, he gives up three alternatives: buying the graphic novel, saving for headphones, and staying home to practice piano. His next-best alternative is savin