What is economics? Needs, goods and scarcity

Imagine this: you worked during the summer holidays and earned 300 francs. Your wish list includes a new mobile phone, concert tickets and a weekend away with your friends – and you wanted to save some money too. You can't afford it all. You have to choose.

This is where economics begins. Your needs – the things you want – are practically unlimited: as soon as one wish is fulfilled, another comes along. Your resources, however, are scarce: you never have enough money, time and energy for everything. This tension between unlimited wants and limited resources is called scarcity.

Scarcity affects more than just you: a family works out whether it can afford a holiday. A business decides what to use its machines for. And the government has to choose whether to spend tax revenue on renovating school buildings or building roads first.

Economising therefore means making thoughtful decisions about how to use our scarce resources to meet as many needs as possible. Everyone does this – every day, usually without noticing. In this module, you will learn the key concepts: needs, goods, scarcity and the economic principle.

A need is the feeling that you lack something, together with the wish to make up for it. Hunger, boredom, wanting a new game: these are all needs. But they are not all equally urgent. We distinguish three levels:

• Survival needs must be met for you to survive: food, drink, sleep, clothing and a roof over your head.
• Basic or cultural needs make life enjoyable and are part of normal everyday life in our society: a mobile phone, a streaming subscription, playing sport at a club, cinema or music.
• Luxury needs go far beyond what is usual: a designer watch, a sports car, a first-class trip around the world.

Watch out for a common misconception: luxury does not simply mean ‘expensive’. What counts as luxury depends on the situation and the society. 150 years ago, a warm shower was pure luxury – today, it is part of normal everyday life here. In Liechtenstein and Switzerland, many people take owning a car for granted, whereas in poorer countries it is a luxury.

We also distinguish who has a need:

• Individual needs concern you alone: your morning snack, your playlist, your new bike.
• Collective needs are shared by many people, and no one can meet them alone: safe roads, schools, a nearby hospital, clean air. These are usually the responsibility of central and local government.

The pyramid of needs: you can picture the three levels as a pyramid (see the diagram): survival needs form the broad base, basic or cultural needs sit above them, and luxury needs occupy the narrow top. The rule is: the higher up a need is, the easier it is to do without it – but you cannot manage without the base. And because the classification depends on the situation and society, needs can move between levels over time. Something to think about: is a smartphone a cultural need or a luxury need in our society today? 20 years ago, the answer was clear – what about today?

Explore further: the best-known model of levels comes from psychology: Maslow's hierarchy of needs (named after Abraham Maslow). It ranges from basic physical needs through safety and social needs to self-actualisation. Remember: these pyramids are simplified models, not laws of nature. In real life, people do not always meet their needs neatly in order from bottom to top – someone might skip lunch to afford concert tickets.

In economics, anything that can satisfy a need is called a good. Here too, there are important distinctions.

Free goods are available in (almost) unlimited quantities – nobody has to pay for them: air to breathe, sunlight or wind. Since they are not scarce, nobody has to decide how to allocate them – economics does not concern itself with them.

Scarce goods – also called economic goods – are only available in limited quantities relative to demand, so they have a price: your mobile phone, a pizza, a haircut.

Whether a good is free or scarce depends on the situation: at a mountain stream here, water is (almost) a free good – you can simply drink it without anyone charging you. In the desert, the same drinking water is essential for survival and extremely scarce – someone selling water there can charge almost any price. The same thing, a different place: an (almost) free good becomes a scarce good.

Scarce goods are divided into two further groups:

• Tangible goods are things you can touch: a mobile phone, a bike, trainers, a pizza.
• Services are activities someone carries out for you: a haircut at the hairdresser's, a bus ride to school, a private lesson – or your streaming subscription. With that, you are not buying an object, but the service that lets you watch films and series.

Because our resources are scarce, people try to use them as sensibly as possible. This basic rule is called the economic principle. It has two versions, depending on what is fixed:

• Maximum principle: your resources are fixed, and you want to achieve as much as possible with them. For example: you have 10 francs for morning snacks for the whole week and want to make the most of that money. Or: you have one hour to study today and want to understand as much of the material as possible.
• Minimum principle: your goal is fixed, and you want to achieve it using as few resources as possible. For example: you are determined to get a concert ticket, so you look for the cheapest place to buy it in advance. Or: you want to learn exactly the 30 words for your French test with as little study effort as possible.

Remember: it is always one or the other. ‘Achieve as much as possible with as few resources as possible’ sounds clever, but it does not work: one side – the resources or the goal – has to be fixed, otherwise you have no basis for deciding.

You encounter the economic principle everywhere: when shopping, studying, gaming (getting as far as possible with a single life) – and later at work. Understanding it helps you make more conscious choices about money and time.