The rationale or justification for the existence of an economy or an economic system lies in the existence of human wants and our desire and activities to satisfy them.
As human beings, we experience wants in several alternative capacities—not only as individuals but also as groups at various collective levels. Examples of the latter include households as also communities identified on geographical, political or other similar basis.”
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It is important to realize that the nature and characteristics of our wants influence the manner in which we try to satisfy them including, for example, the type of institutions we create, the type of policies we pursue and the type of efforts we make.
Classification:
It is conventional to classify wants into economic and non-economic categories. According to this classification, economic wants are those the satisfaction of which necessitates the use of some “means of satisfaction” (that is, some goods and services).
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It is usually very difficult to identify wants which are purely non-economic, but this difficulty is generally ignored in economic reasoning. Activities directed at the satisfaction of economic wants are termed “economic activities”.
Satisfaction of Wants:
An economic want demands to be “satisfied”. Its “non-satisfaction” implies that the person experiencing it suffers from some form of “pain”, “a sense of dissatisfaction”, “h sense of emptiness”, or “a sense of non-fulfillment”, etc. It is immaterial whether his “suffering” is at physical and/or mental level.
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What is relevant is that, as a rule, the average person is keen to get rid of his wants and is ready to use some “means of satisfaction” to achieve that objective.
The “pain” of an unsatisfied want varies in direct proportion to its urgency and intensity. Economic reasoning uses this fact as one of its basic premises2, and we generally assume that wants of greater intensity are given priority in satisfaction.
Scarcity of Means of Satisfaction:
Economic wants have an inherent tendency to recur and multiply. We cannot get rid of them simply by satisfying them. Satisfaction of both economic and non-economic wants tends to give rise to fresh economic wants.
They keep multiplying in ever-increasing volume and variety. This implies that their satisfaction requires a ceaseless addition to the availability of means of satisfaction.
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As compared with their ever-increasing need, the availability of means of satisfaction provided “free of cost” by nature is always insufficient.
Tackling the Problem: Creation of an Economic System:
Faced with this inherent and unending imbalance between the need for—and availability of—means of satisfaction, society responds not by reducing its wants but by adopting a two-fold strategy.
Augmenting Means of Satisfaction:
It tries to increase the availability of means of satisfaction by producing more and more of their man-made category. Factually, however, wants always outstrip the availability of means of satisfaction.
As yet, it has not been possible to overcome their scarcity in relation to needs. And this implies that it is never possible to satisfy all warns. Some of them have to be left unsatisfied.
Optimum Utilisation:
Hence, for optimal satisfaction, wants have to be prioritised on the basis of their intensity. Allocating means of satisfaction to wants on this basis is also known as their “economical use” or “minimising their wastage’!
A society puts this two-fold strategy into practice by creating and adopting what is termed an economy or an economic system.