Year 1 1.4 Scarcity, choice and allocation of resources

The Basic economic problem of scarcity

The basic economic problem is that resources are scarce

there are finite resources available in relation to the infinite needs and wants that humans have

Due to this, choices have to be made about the best use of these resources

Economics is the study of scarcity and its implications for resource allocation in society

Consumers

In a free market, scarcity has a direct influence on prices. The scarcer a resource or product, the higher the price consumers will pay.

Producers

They will find their costs of production are higher if they are scarce recourses

workers 

They want a comfortable and safe working environment but employers may not have the resources to create it 

Government

Governments have to decide if they will provide goods/services or private firms.

• Decisions they make influence allocation of resources in society

Opportunity cost

is the loss of the next best alternative when making a decision. Due to scarcity, choices have to be made about how best to allocate limited resources amongst competing wants and needs