1.1 Scarcity, choice and opportunity cost

• Economics


  The study of how to allocate limited resources to satisfy unlimited wants
• Economics


  • A social science, which investigates what, how, and for whom goods and services are produced
• Scarcity


  When there are limited resources to satisfy unlimited wants
• Scarcity


  • Two competing facts: 1) Limited supply of resources on planet earth, 2) Unlimited wants for goods produced by the limited resources
• Choice


  Decisions on what products to produce, how to produce, and for whom to produce
• Opportunity cost


  The quantity of other goods that must be given up to obtain a good (the cost of the next best alternative foregone)
• Individuals, firms and governments have to make choices due to the scarcity of resources
• Governments have to decide on the best possible way to allocate budget (example – build more schools or hospitals)
• Firms have to decide how to maximize profit (what is the most efficient way to produce goods)
• Individuals have to decide how to maximize their welfare (which goods will give them most satisfaction)
• In the process of making choices, economic agents have to give up other alternatives, so the concept of opportunity cost is applicable