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Definition of Needs and Wants:

Our needs are the things that are necessary for survival, for example, food, shelter and clothing. The goods and services that supply them are basic and essential. Once our needs are satisfied, we turn to satisfying our wants, buying the more complex commodities that improve the quality of our lives.

Imagine a student with a limited income, who purchases generic brand food, lives in cheap rental accommodation and buys clothes at opportunity shops and chain stores. If the student experiences a sudden increase in income (inheritance, finishing study and getting a well-paid job) they will still satisfy their needs but will satisfy their wants (desires) as well. The former student may be able to now eat at restaurants, take out a mortgage on a house, and purchase expensive fashionable clothing.

Characteristics or Features of Needs and Wants:

Following are the main features or importance of needs and wants:

(i) They are unlimited. We will never completely satisfy all of society’s needs and wants. There will always be a new model car, the latest fashion, chic holiday destinations. Our needs and wants will always be with us and are limitless.

(ii) They are recurrent. Some needs and wants are recurrent; they have to be satisfied again and again. Examples are coffee first thing in the morning (is this a need or want?), lunch every day, going out on Saturday nights.

(iii) They are complementary. Satisfaction of some needs and wants requires the consumption of more than one good or service. In order to satisfy the want of listening to music, you must ‘consume’ both a compact disc and a compact player. Each product by itself is virtually useless. Additional examples are a mobile phone and sim card, and petrol for a car.

(iv) They change. An individual’s needs and wants change over time. A 10-year old has little interest in playing pool, drinking beer and listening to music in a noisy smoke-filled pub. But after eight years or so, their wants will have changed. A 28-year old may be more interested in a job, apartment and investment portfolio. So our needs and wants change over time as our experiences, expectations and abilities to satisfy them changes.

Three-Step Process of Satisfying Needs and Wants:

The economic process of satisfying needs and wants has three steps; it uses resources in production, distribution and consumption, as given below in the diagram:

Production:

Production is the process of combining the resources of land, labor, capital and enterprise to produce goods and services. Production can be labor-intensive, with a high ratio of labor to capital; or capital-intensive, with a high ratio of labor to capital. The choice depends on the amount of factors of production in the economy, the cost and availability of capital, the skill and education levels of labor, and the particular type of production taking place. A large, cheap, well-educated labor force may be a more profitable alternative than expensive technology and machinery.

Distribution:

The resources and goods that have been produced have to be distributed to the people who want them. Distribution is an element that distinguishes different types of economic systems.

Consumption:

Finally, the goods and services are consumed. This consumption raises questions of who should have access to the goods and services. With a finite level of resources, there must be some way of allocating the limited goods and services among the unlimited needs and wants of a society.