4.1.1.4 scarcity, choice and the allocation of resources

Question 1

what is the basic economic problem?

Answer 1

• scarcity
• wants are unlimited and resources are finite so choices have to be made
• resources have to be used and distributed optimally

Question 2

what is the opportunity cost?

Answer 2

• opportunity cost of a choice is the value of the next best alternative
• is important to economic agents, like consumers, producers and governments
  -> the gov might have to choose between spending more on the NHS and spending more on education
  -> cannot do both due to finite resources, so a choice has to be made for where resources are best spent