Scarcity, Choice and the allocation of resources

Question 1

Why is scarcity sometimes considered the fundamental economic problem?

Answer 1

-This is because it results from limited resources and unlimited wants.

-It also means that choices have to be made about how scarce resources are allocated to different uses.

Question 2

What is the definition of Economics, in terms of Scarcity?

Answer 2

• World’s scarce resources vs Human’s infinite wants.

Question 3

What is meant by the term opportunity cost?

Answer 3

• Opportunity cost can be defined as the benefit lost of the next best alternative when making a choice.

-There is an opportunity cost for all decisions made by economic agents.

Question 4

What is a ‘trade-off’?

Answer 4

• When there may be a range of alternatives all of which have been given up.

Question 5

How is the concept of opportunity cost considered to be useful?

Answer 5

• Can be applied to a number of empirical case studies.
• What, how, and for whom a product should be produced.
• How to use scarce resources, like government spending.
• Useful in diagrammatic analysis, like production possibility diagrams.

-Evaluative, always requires a judgement that builds on prior analysis and application.