Table of contents

Contents
Page
-Economics is concerned with scarcity and choice.
-What is meant by opportunity-cost?
4
-References
5

2-3

Economics is concerned with scarcity and choice. Discuss this statement and expl
ain giving appropriate examples.
Economics is the branch of knowledge concerned with the production, consumption,
and transfer of wealth.Human beings have unlimited wants. That is to say that t
here is never such a time that a human being is satisfied and not in need of any
thing. On the other hand, resources accessible in nature, which should be used t
o meet those human wants, are limited. The accessible resources can never be suf
ficient to satisfy all human needs. This phenomenon, where there are unlimited h
uman wants which are to be met by very limited resources, is fundamentally what
economists call scarcity.Scarcity is concerned with the shortage or inadequate s
upply of goods that people want. Choice, on the other hand can be defined as the
act of making a decision between two or more things.
The most basic economic problem is about scarcity and choice. Every society has
to agree on three vital things. These are:
* What goods and services to produce? Does the economy use its resources to buil
d more hospitals, roads, schools or luxury hotels? Does the National Health Serv
ice provide free treatment for childless couples?
* How best to produce goods and services? What is the best use of our scarce res
ources? Should school playing fields be sold off to provide more land for afford
able housing? Should we subsidize the purchase of solar panels for roofs?
* Who is to receive goods and services? Who will get luxurious hospital treatmen
t - and who not? Should there be a minimum wage? Or perhaps a living wage? What
are the causes and consequences of poverty in societies across the globe?
Scarcity limits us both as individuals and as a society. As individuals, limited
income (and time and ability) keep us from undertaking and having all that we m
ight like. As a society, limited resources (such as manpower, machinery, and nat
ural resources) fix a maximum on the amount of goods and services that can be cr
eated.
Scarcity requires choice. People must select which of their desires they will sa
tisfy and which they will leave unsatisfied. When we, either as persons or as a
society, select more of something, scarcity forces us to take less of something
else. Economics is sometimes called the study of scarcity because economic activ
ity would not happen if scarcity did not force people to make choices.
When there is scarcity and choice, there are costs. The cost of any choice is th
e option or options that a person gives up. For example, if you gave up the opti
on of playing a game to read a book, the cost of reading the book is the enjoyme
nt you would have received playing the game. Most of economics is built on the s
imple idea that people make choices by associating the benefits of option A with
the benefits of option B (and all other options that are available) and choosin
g the one with the highest benefit. On the other hand, one can view the cost of

choosing option A as the sacrifice tangled in rejecting option B, and then say t
hat one chooses option A when the benefits of A dominate the costs of choosing B
(which are the benefits one loses when one rejects option B).
Economics is therefore primarily concerned with scarcity and choice since this i
s its foundation.

What is meant by opportunity-cost?

Opportunity cost is animportant concept in economics, and has been termed as con
veying "the basic relationship between scarcity and choice". The idea of opportu
nity cost plays a vital part in ensuring that scarce resources are used resource
fully. Thus, opportunity costs are not controlled to monetary or financial costs
only. The real cost of output forgone, lost time, pleasure or any other benefit
that provides utility should also be considered opportunity costs.Opportunity c
osts or costs can be placed under two categories. These are:
-Explicit costs-Explicit costs are opportunity costs that include direct monetar
y payment by producers. The explicit opportunity cost of the factors of producti
on not already owned by a producer is the price that the producer has to pay for
them. For instance, if a firm spends $100 on water consumed, its explicit oppor
tunity cost is $100. This cash expenditure signifies a lost opportunity to purch
ase something else with the $100.
-Implicit costs-Implicit costs (also called implied, imputed or notional costs)
are the opportunity costs not replicated in cash outflow but implied by the disa
ppointment of the firm to assign its existing (owned) resources, or factors of p
roduction to the best alternative use. For example: a manufacturer has formerly
purchased 1000 tons of steel and the machinery to produce a widget. The implicit
part of the opportunity cost of producing the widget is the revenue lost by not
selling the steel and not renting out the machinery in its place of using them
for production.

References
http://www.investopedia.com/terms/o/opportunitycost.asp
http://www.econlib.org/library/Enc/OpportunityCost.html
http://en.wikipedia.org/wiki/Opportunity_cost
http://tutor2u.net/economics/revision-notes/as-markets-scarcity-and-choice.html
http://www.socialstudiesforkids.com/articles/economics/scarcityandchoices1.htm
http://www.whatiseconomics.org/what-is-economics/scarcity
http://ingrimayne.com/econ/Introduction/ScarcityNChoice.html