1.1.3 The Economic Problem

• Importance of Opp. cost to Economic Agents

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  • CONSUMERS make choices about spending time and money. Opp. cost helps them make informed choices, such as choosing between buying a new phone or saving for a vacation
  • PRODUCERS allocate resources to maximise profits. Opp. cost influences production decisions, like choosing which products to manufacture
  • GOVERNMENTS allocate budgets to various programmes and policies. Opp. cost informs decisions on allocating resources between healthcare, education, defense and more
• -'s of considering opp. cost

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  • Can be complex and time-consuming to consider ALL alternatives
  • Difficulty in quantifying non-monetary resources/benefits
  • Opp. cost may change, leading to sub-optimal choices
  • Assumptions may be uncertain or speculative
• +'s of considering opp. costs

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  • Promotes efficient allocation of resources
  • Helps make more informed decisions
  • Helps maximise economic efficiency
  • Promotes a better understanding and the importance of alternatives
• APP - The Economic Problem

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  • Water Scarcity (India/China)

  Rapid urbanisation and industrialisation have led to increased pollution of bodies of water, making them unfit for consumption in India.

  The United Nations, which lists China as one of 13 countries contending with serious water scarcity, says it has 21% of the world's population, but only 6% of its freshwater

  • Food Scarcity

  Up to 783 million people faced hunger in 2022, and projections show that in 2030, over 600 million people will still struggle to feed their families