FE - Scarcity and Opportunity Cost (Lesson)

Scarcity and Opportunity Cost

Introduction

What does the saying “There is no such things as a free lunch” mean?

How do we satisfy unlimited wants and desires? What must be done to make these decisions in the face of limited resources? How does the history of the economy repeat itself and result in the market we study?

As you go through this lesson, make sure you are able to identify the following:

• Explain what economics is.
• Explain the differences between a market and command economy.
• Explain the role incentives and property rights play in a market economy.
• Explain how marginal analysis helps people and society make choices.
• Explain the significance of the four economic resources.
• Explain what scarcity is.
• Explain what opportunity cost measures.

Watch the video below to get an overall idea of what economics is all about.

 

Scarcity, Opportunity Cost & Trade Offs

All choices mean that one alternative is selected over another. Selecting among alternatives involves three ideas central to economics: scarcity, choice, and opportunity cost.

Click on each section of the image in the activity below to learn more.

The Economic Way of Thinking

The presentation below will cover economics, opportunity cost and scarcity. 

 

Take a closer look at some questions every economist asks in the activity below.

The 4 Factors of Production

1. Land or Natural Resources - Naturally occurring goods such as soil and minerals that are used in the creation of products. The payment for land is RENT.
2. Labor - Human effort used in production which also includes technical and marketing expertise. The payment for labor is a WAGE. 
3. Capital Goods - Human-made goods (or means of production) which are used in the production of other goods. These include machinery, tools and buildings. In a general sense, the payment for capital is called INTEREST. 
4. Entrepreneurship - Business starter who starts their own business. Think FACEBOOK! Entrepreneurship gets its reward in the form of PROFITS.

Watch the video to learn how we use each as resource.

 

 

Scarcity

There are not many free goods. Outer space, for example, was a free good when the only use we made of it was to gaze at it. But now, our use of space has reached the point where one use can be an alternative to another. Conflicts have already arisen over the allocation of orbital slots for communications satellites. Thus, even parts of outer space are scarce. Space will surely become more scarce as we find new ways to use it. Scarcity characterizes virtually everything. 

Watch the video below to learn more.

 

 

Opportunity Cost

Opportunity cost is what you missed out on getting when you chose to do something else. The cost can be in dollars, time, or anything. If you had to choose between going to college or getting a job, the opportunity cost of choosing college would be the money you have to spend on tuition plus the money you would have earned if you had a job. If you chose getting a job, the opportunity cost would be the diploma you would have earned in college, all the things you would have learned, and all the friends you would have made. We use opportunity cost to determine which choice is the better one.

The concept of opportunity cost must not be confused with the purchase price of an item.

Watch the video below to learn more.

 

 

Trade-offs

A trade-off is a situation that involves losing one quality or aspect of something in return for gaining another quality or aspect. More colloquially, if one thing increases, some other thing must decrease.

In economics, a trade-off is commonly expressed in terms of the opportunity cost of one potential choice, which is the loss of the best available alternative. The concept of a trade-off is often used to describe situations in everyday life. 

Watch the video below to learn more about trade-offs.

 

 

Review

Review what you have learned by completing the activity below.

In Summary...

• Economics is a social science that examines how people choose among the alternatives available to them.
• Scarcity implies that we must give up one alternative in selecting another. A good that is not scarce is a free good.
• The three fundamental economic questions are:
  
  1. What should be produced?
  2. How should goods and services be produced?
  3. For whom should goods and services be produced?

• Every choice has an opportunity cost and opportunity costs affect the choices people make. The opportunity cost of any choice is the value of the best alternative that had to be forgone in making that choice.

 

 

IMAGES CREATED BY GAVS