Basic economic concepts

Scarcity and Choice

Opportunity cost

Human wants
Unlimited wants

Resources
used to produce goods / services to sati
sfy human wants
limited in supply
scarce: i.e. their quantities are insuffic
ient to satisfy all human wants

Types of resources
Natural resources: e.g. sunshine, rain,
crude oil
Human resources: labour service
Man made resources: e.g. machines, eq
uipments

Scarcity
Meaning: Resources are insufficient
to satisfy ALL human wants
A relative concept: we want more than
we have
Basic economic problem in human soc
ieties

Do they face scarcity proble

m?
United States
Hong Kong
North Korea
Africa

Is sea water scarce?

Is it fixed in supply?
Do we want more sea water than we h
ave?
Sea water is not scarce

Are they scarce?

Sunshine in Thailand
A free sample of candies given at a shopping
centre
Fresh air in a caf with many smokers
Sand in the desert

Are they scarce?

Sunshine in Thailand
A free sample of candies given at a shopping
centre
Fresh air in a caf with many smokers
Sand in the desert

Competition
We compete for the use of limited reso
urces
2 ways of competition
Price competition
Non price competition e.g. waiting, exami
nation, lucky draw, violence

Making choices
Which restaurant will you go for lunch?
What would you like to study at university?
What will you buy with $100? CD or dress
?
Which girl (boy) will you marry?

What is economics?
It studies how we allocate the limited r
esources to satisfy unlimited wants

Opportunity cost
Opportunity cost is the highest-valued
option forgone

Choice among options

Rank options according to a persons p
reference order
Option 1 going to cinema
Option 2 going to sing karaoke
Option 3 sleeping at home

What is the cost of going to t

he cinema?
Going to sing karaoke (highest-valued
option forgone)
We cannot choose option 2 and option
3 at the same time, we only forgo optio
n 2 when we select option 1

Choosing a career / job

Option 1 being an actress ( $10 Mn. p.a.)

Option 2 being a nurse ( $ 0.5 Mn. p.a.)
.
Income forgone being an actress < income f
orgone being a nurse

Cost being an actress < cost being

a nurse
Choose the job with the lowest opportunity c
ost

More elderly found in queues

Before festivals, wait for gifts (rice, m
ooncakes, red envelopes etc)
In public clinics
Income forgone by elderly < income fo
rgone by working persons
Cost of waiting by elderly < cost of wa
iting by working persons

Full cost
Option 1 going to a 1 hour concert and pays
$200 for a ticket
Option 2 working in Parkn as a salesman e
arning $30 per hour
Option 3 working as a tutor earning $100 pe
r hour
Full cost of attending the concert = price of t
icket + income forgone (highest-valued opti
on forgone)
Full cost of attending the concert = $200 +

Complimentary tickets

Going to Hong Kong Disneyland

Ticket : Free of charge
Money spent on food, transport..=$200
Income forgone = $500

Full cost of going for Disneyland (HK)

=$700

Is Time a cost?
Price of a mobile phone =$1 800
Search = one evening
Income forgone while searching = $20
0
Opportunity cost of buying the mobile
phone is $2 000

Uses of a flat
Mrs Lo has the following options for her flat
in Shatin :
Option 1
Owner occupied
Option 2
Vacant
Option 3
Lease with a rental income $5
0 000 per year
Suppose she chooses to live in her flat, what
is her cost of living in that flat?

Social Cost
Building a new railway $100 millio
n
Creating pollution nearby (e.g. cutting
trees, noises)
$5 million
Social cost of building highway
= private cost + external cost
= $105 million

Questions
&
Answers

Q1

Miss Cheng could spend two hours at a concert or

tutoring a student at $70 per hour. She could use the time
on painting instead and earn a total of $170. If the price of
the concert ticket is $250, what is the opportunity cost of
her choice of going to the concert?
A. $410

B. $420

C. $430

Answer : C. $430

D $440

Q2

No. of coupons

Gifts

5
15
20

Cup
Bag
Camera

A.Cup

B. Bag

Mary has accumulated 20 Coupons.

What is the opportunity cost to her
if she uses them to exchange for one
camera?

C. Cup and Bag

Answer: C. Cup and Bag

D. Cup or Bag

Q3
A. Once a choice is made,
the problem of scarcity
is solved.

Which of the
following statements
about scarcity is true?

B. A good is scarce if not

everyone has it.
C. Scarcity means unlimited
human wants.
D. Both rich people and poor
people face the problem
of scarcity.

Answer: D

Q4

Which of the following are opportunity

costs of attending school?
(1) Poor examination results
(2) Income forgone
(3) School fees
(4) Expenditure on dinners

Answer: C. (2) and (3) only

A. (1) and (4) only

B. (1) and (3) only
C. (2) and (3) only
D. (2) and (4) only