Answer to Question #183719 in Economics for Mulweli

Question

Explain the difference between shortages and scarcity in economic analysis in both the short and the long run. (6)

Answer 1

The main problem in economics is that society does not have sufficient production resources to meet unlimited human needs and wants. From an economic point of view, a phenomenon that claims that unlimited human needs must be met with limited resources is called scarcity. Alternatively known as paucity, which implies having something in small numbers.

Any economic activity is carried out with the aim of solving the problem of the deficit. While scarcity is critical, resources take time to breed. Thus, we must make a choice as to which desire should be satisfied first in order to make the best use of limited resources. Government spending and its revenues do not always coincide. If spending is greater than revenues, then the government faces a budget deficit. The opposite situation, that is, the excess of revenues over expenditures, is called a budget surplus, or surplus.

It is customary to distinguish between primary and general budget deficits.

The primary deficit is the total government budget deficit reduced by the number of interest payments on the government debt. By analogy, the primary surplus is determined.

It is also accepted to distinguish between actual, structural, and cyclical deficits of the state budget.

The actual deficit is the negative difference between actual (actual) government revenues and expenditures.

The structural deficit is the difference between the revenues and expenditures of the state budget, calculated for the level of national income corresponding to full employment. In other words, this is the difference that would exist if, under the current taxation system and government spending adopted by the legislature, full employment was observed in the economy.

Cyclical deficits are the difference between the actual and structural deficits of the government budget. Cyclical deficits are a consequence of fluctuations in economic activity during the business cycle. At the same time, changes in tax revenues and government spending are automatic.