Scarcity, and who decides

Word	What it means
Scarcity	Wants are unlimited, but the resources to meet them — land, workers, money, time — are not.
Opportunity cost	The next-best thing you give up when you make a choice.
The basic economic questions	What to produce, how to produce it, and for whom.
Market economy	Buyers and sellers answer those questions, through prices, competition and private ownership.
Supply and demand	Supply is how much sellers offer at each price. Demand is how much buyers want, and can pay for, at each price.
Surplus and shortage	A surplus is more offered than wanted; a shortage is more wanted than offered.
Command economy	The government answers the basic questions. Also called a planned economy.
Mixed economy	Markets, plus a government that regulates, taxes, runs public programs and owns some businesses.
Government intervention	Any government action that changes what a market would do on its own.
Crown corporation	A business owned by a government, such as Canada Post or Alberta's ATB Financial.
Privatization	Selling a government-owned business or service to private owners.
Labour union	Workers who bargain with an employer as a group — collective bargaining — over pay and conditions.

Start small. An invented school council has $5000 and three requests:

Water-bottle filling station $4000 · Bike racks $3000 · Sports equipment $1000

It cannot have all three. Choose the bike racks and the equipment ($4000 together), and the filling station is the opportunity cost. Choose the filling station and the equipment, and the bike racks are. Scarcity does not mean the council is poor. It means its wants are bigger than its budget, which is true of every family and every country.

Scale it up. A country asks what to produce (more houses or more pipelines?), how (many workers or machines, cheaply or cleanly?) and for whom (whoever can pay, whoever needs it most, or everyone equally?). A market economy lets prices answer; a command economy has the government answer. Every real economy mixes the two, and the argument is always about how much of each.

Worked through. Strawberry growers at an invented farmers' market start at $8 a basket. Few people buy, and by noon they cut prices rather than let fruit spoil. Another week a grower starts at $3 and sells out in minutes, so next time she charges more. Within a few weeks the price settles near $5. Nobody ordered it — the idea usually summed up in the economist Adam Smith's phrase from 1776, the “invisible hand”. Underneath are the market's principles: private property, the profit motive, competition (a buyer can walk to the next table), and consumer sovereignty (what buyers choose decides what gets grown next year).

Where markets struggle. A market answers for whom with “whoever can pay”. It will not build a road nobody can be charged for using, and a factory's prices leave out the smoke it puts in everyone's air. When what is scarce is hospital care rather than strawberries, many people will not accept that answer. That is where government comes in.

The tools. Regulation: the Alberta Energy Regulator sets rules for oil and gas companies. Public programs: every province pays for medically necessary doctor and hospital care. Ownership: Crown corporations such as Canada Post and ATB Financial. Governments move both ways: in 1993 Alberta sold its government liquor stores, and private stores now sell alcohol under provincial licences.

Canada and the United States. Each Canadian province runs public health insurance paid for through taxes. In the United States, most working-age people are insured privately, usually through an employer, and government programs cover mainly people 65 and older (Medicare) and some people with low incomes (Medicaid).

Labour unions bargain for all their members at once, and can strike if talks fail. Supporters say they raise wages and safety; critics say they raise costs and can shut down services. Some American states have “right-to-work” laws stopping unions from requiring every worker they represent to pay dues; Canadian provinces generally do not.

Source. Two invented speakers. Speaker I, a cattle rancher: “My calves are priced at auction, by buyers bidding against each other. That is fair. I don't need government telling me what they are worth.” Speaker II, a nurse: “Nobody should have to check their bank account before they see a doctor.”

Reading it. Speaker I trusts supply and demand; Speaker II wants health care handled by a public program. So Speaker I would most likely oppose a government-set price for cattle, and Speaker II would most likely support public health insurance.

The point most students miss. These two need not disagree at all. A mixed economy can leave cattle to the market and doctor visits to government. The tempting wrong answer is that Speaker II supports a command economy — but she wants one service provided publicly, which is intervention within a mixed economy, not the government running everything.

• Calling Canada socialist, or the United States a pure market economy. Both are mixed.
• Confusing opportunity cost with price. It is what you gave up, not what you paid.
• Swapping surplus and shortage. A shortage is more wanted than offered, and pushes prices up.
• Treating a Crown corporation as a government department. It is a business that a government owns.