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In Thomas Sowell's book titled, "Basic Economics", he says the following:

"Unmet needs" are inherent in these circumstances, whether we have a capitalist, socialist, feudal, or other kind of economy. These various kinds of economies are just different institutional ways of making trade-offs that are inescapable in any economy.

He has been talking about what scarcity means and what it implies -

It means (Scarce) that what everybody wants adds up to more than there is. What this implies is that there are no easy "win-win" solutions but only serious and sometimes painful trade-offs.

In a real world context, what would be some big trade-offs that the U.S., specifically, has made? And, what have been some consequences or maybe some pros of those decisions?

The reason I am asking this is because I can't really 'picture' what exactly a trade-off is.

Thanks for your time!

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It might be easier to grasp the idea of a tradeoff by framing the concept at a less-than-national scale.

At a personal level, you might think of a tradeoff as giving up a little bit of one thing so you can have a little bit more of another. So, maybe you save your lunch money for a few weeks so you can get new shoes. The thing that is scarce here is money. You save your money (you accumulate your scarce resource) by forgoing lunch (the sacrifice) and then buy new shoes (the gain). The tradeoff is the lunch/shoes. You were a bit hungry so that could dress better and impress the ladies.

This is a bit naive but it illustrates the idea here: a tradeoff is just achieving a balance between desirable but incompatible/mutually exclusive things.

A better example that actually answers your question (all nations face this) is the unemployment/inflation tradeoff mapped by the Phillips curve. Here, the tradeoff is the rate of unemployment a nation must endure relative to the amount of inflation a nation must endure.

As you can see in the image, reducing inflation comes at the cost of increasing unemployment and reducing unemployment bears the cost of increased inflation. Thus, a nation must optimize its outcome by striking a balance between the two.

enter image description here

That should be enough for you to think of what tradeoffs America faces. A good place to look might be at national budgeting decisions. The recent financial crisis certainly forced some big decisions. If you understand the concept it is relatively easy to identify tradeoffs.

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  • $\begingroup$ Wow, this is spectacular information! Thank you for the great answer. $\endgroup$ – Carlos Carlsen May 10 '16 at 0:24

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