Scarcity, choice and opportunity cost

Basic economic problem

how to allocate scarce resources given unlimited wants, this forces choices to be made on what to produce, how to produce and for whom to produce

what to produce (definition)

which goods and services should be produced to effectively meet the needs and wants of a society

what to produce (factors)

resource availability: the type and quantity of available resources heavily influence an economy's production choices / consumer preferences: producers must stay attuned to the preferences of consumers in order to remain profitable / technonological capabilities: technological advancements can make previously unviable goods feasible and desirable

how to produce (definition)

which techniques and processes to employ in production to achieve maximum effectiveness and efficiency in resource allocation

how to produce (factors)

resource efficiency: methods that maximise the utility of resources while minimising waste are preferred / cost and quality balance: balancing the use of cost-efficient methods and maintaining quality / environmental concerns: with growing awareness of environmental issues, sustainable and eco-friendly production methods are gaining prominence

for whom to produce (definition)

how to allocate resources among different segments of society

for whom to produce (factors)

income and wealth distribution: distribution of income and wealth in a society dictates who can afford what goods and services / cultural and social norms: cultural beliefs and societal structures can influence who is deemed eligible or priotirised for certain products / government intervention: government policies play a significant role in resource distribution, especially in providing public goods and services.

Opportunity cost

the cost of the next best alternative that is forgone

Applications of Oppurtunity Cost

Guiding resource allocation: both governments, and businesses use oppurtunity cost to guide decisions about how to allocate scarce resources effectively / Driving Cost-Benefit Analysses: The assessment of the benefits against its oppurtunity costs to determine the most advantageous course of action / Shaping Economic Policies: Policymakers use oppurtunity cost to predict the outcomes of their decisions, ensuring that resources are utilised in the most efficient way possible

Choices made by individuals

Revolves around everyday choices regarding expenditure, time management, an personal investment. These decisions often reflect personal preferences, income level, and aspirations, and showcase the fundamental economic principle of choice under constraint.

Choices made by firms

Firms encounter decisions concerning product development, technological adoption, and resource allocation. These decisions are primarily driven by factos like market demand, cost structures, and strategic objectives.

Choices made by governments

Encompass areas such as resource distribution, fiscal policy, and public service provision. These decisions are influenced by factors such like economic stability, public welfare, and equitable growth.