Scarcity, choice and opportunity cost
The economic problem
- Economics starts with scarcity: we never have enough for everyone's wants.
- resources are finite (limited); human wants are unlimited.
- So every society must answer three questions:
- What to produce?
- How to produce it?
- For whom to produce it?
Practice
The economic problem arises because:
Scarcity — unlimited wants and finite resources — is the root economic problem.
Practice
Which is one of the three questions every economy must answer?
The three questions are What, How, and For whom to produce.
Choice and opportunity cost
- Because resources are scarce, you must choose — and every choice gives something up.
- Opportunity cost = the next best alternative you give up.
- It applies to consumers (phone vs holiday), firms (cars vs trucks), and governments (hospitals vs schools).
Practice
Opportunity cost is:
Opportunity cost is what you sacrifice — the next best alternative forgone.
You've got it
Key idea
- scarcity: finite resources vs unlimited wants → the economic problem (what/how/for whom)
- opportunity cost = the next best alternative given up
- everyone faces it: consumers, firms and governments